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QuickBooks 2013 For Dummies by Stephen L. Nelson, MBA, CPA

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The “You Can Grow Too Fast” Formula

Here’s a weird little paradox: One of the easiest ways for a small business to fail is by being too successful. I know. It sounds crazy, but it’s true. In fact, I’ll even go out on a limb and say that small business success is by far the most common reason that I see for small business failure.

“Oh, geez,” you say. “This nut is talking in circles.”

Let me explain. Whether you realize it, you need a certain amount of financial horsepower, or net worth, to do business. (Your net worth is just the difference between your assets and your liabilities.) You need to have some cash in the bank to tide you over the rough times that everybody has at least occasionally. You probably need to have some office furniture and computers so that you can take care of the business end of the business. And if you make anything at all, you need to have adequate tools and machinery. This part all makes sense, right?

How net worth relates to growth

Okay, now on to the next reality. If your business grows and continues to grow, you need to increase your financial horsepower, or net worth. A bigger business, for example, needs more cash to make it through the tough times than a smaller business does — along with more office furniture and computers, and more tools and machinery. Oh, sure, you might be able to have one growth spurt because you started with more financial horsepower (more net worth) than you needed. But — and this is the key part — you can’t sustain business ...

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