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The biggest reason for the high failure rate of small businesses lies in being under-capitalized. Many new small business start ups have great potential for success, but lack secure financial footing because many new business owners fail to realize the need for proper financial planning.

Those who share the dream of owning their own small business should take advantage of resources that are available to them without cost to avoid starting an under-funded small business. One such resource is the Small Business Administration. This government agency has a wealth of information available regarding all aspects of starting a small business. From their website at http://www.sba.org/, anyone can investigate their services in all areas of starting new businesses.

Even though it may seem complicated and time consuming to utilize their services, having knowledge of what may be available through them is worthwhile. If securing federal assistance for financial reasons does not seem appealing, a visit to your local banker will prove most interesting. Most larger banks have a specialist in the area of small business services who can help evaluate your particular idea for a new small business.

Because the economy is not always predictable, it is likely that projections of cash flow in a new business will not be accurate. Anticipated profits can never be assured, and an adequate cash reserve is the only defense against business short-falls. Many business advisors will suggest that one have a cash reserve sufficient to operate a small business "out of pocket" for a year if necessary.

For most new business owners to be able to do that, a good line of credit would probably be a must. For that reason alone, serious consultation with your banking connections is necessary. In addition, changing conditions may affect what reality might dictate in only a matter of months. A supportive banker today is not a guarantee of a supportive banker in six months in a changed business climate.

Anyone considering a new business start up should have all financial details pre-arranged. To avoid becoming another casualty of an unpredictable economy, having sufficient funds available is necessary. Whether it be through personal savings, good banking relationships, or a private financial backer; having the financial details of your business well-planned is the best idea for success.

The rewards of owning a successful small business are substantial, and not to be discouraged. However, reality must be a part of good business planning. If the future reality of your new business is that there is no money available to meet your obligations, you may fall prey to the biggest reason why small businesses fail. It would be a shame to lose a business that could have succeeded with proper planning from the onset.

Learn more about this author, Bob Schmidt.
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