Top 10 Reasons Small Businesses Fail: Overspending for Fixed Assets

by Dawn Fotopulos on May 21, 2010

Top ten reasons small businesses fail is our series on traps small businesses and solopreneurs can avoid. In this article, we’ll talk about overspending for fixed assets. For a quick review you should take a look at the Balance Sheet explanation in our training videos.

Balance Sheets Always Balance!

Let’s remember assets are stores of value; they are “things” the business owns. Assets are cash or convertible into cash.

Assets are captured on the left side of the balance sheet of your business. They come in two types, the first is:  Current Assets, which are convertible into cash within twelve months (typically). Cash, inventory and accounts receivables (customers who owe YOU money) are considered current assets.

Cash is an Asset

Cash is a Current Asset

The second kind of assets are long term or Fixed Assets. These are also convertible into cash, but it usually takes longer than one year to sell them. Land, buildings, computers, equipment, office furniture are usually considered Fixed Assets.

Computers and Furniture Fixed Assets

Top ten reasons small businesses fail is they spend way too much money on fixed assets too soon. Remember the dot-coms? The spent fortunes on state of the art computers, furniture, offices. By doing that, they loaded up on expenses long before their revenues could catch up. Retailers are also noted for this.

They build out large spaces, which is very expensive. Often, the small business owner or solopreneur doesn’t even own the space; they’re just renting.  Then they pray customers will show up.

You know Paula Dean? She really made it the hard way. Her first restaurant, The Bag Lady, was always her dream. Do you know where she got the chairs and tables to put in her first store? From her dining room and yard sales.

In our training videos, we talk about Citistorage, one of the most successful storage companies in the U.S. Norm Brodsky who was the founder of Citistorage often talks about the good old days, when all the furniture in the company was used. He pointed to his beautiful new desk and said “it took twenty years before I bought a new desk”.

What was he saying? When you’re a solopreneur or small business owner, you must leave your ego at the door. Buy used furniture, buy refurbished computers from a reputable dealer. Cut costs every way you possibly can.

My network administrator, Andi Pema, is a genius at keeping old computer systems running like new. He backed up all my files, reformatted my hard drive, added memory and off we go!

Computer lightening!

The desktop computer from which I’m writing this article is seven years old. No that’s not a typo. SEVEN years and still going. I’m thankful to have Andi who knew what to do when the system started slowing down. For a day’s work, he saved me thousands.

The office chair I’m sitting in is over fifteen years old. My five drawer files cabinets were bought second-hand. You don’t need the finest or newest. You need what works.

One of the top ten reasons small businesses fail is due to overspending for fixed assets. Here are some tips:

As the business grows, replace one worn item or slow piece of equipment each year, not all at once.

Budget for new computers at least two years before you’ll really need them so the business doesn’t feel the intense pain of a big expense at one time.

Repair, Don't Replace

Get to know your used office furniture dealer first before you buy new. You’ll be shocked at all the beautiful furniture that’s available at deep discounts to new.

Don’t worry about what you don’t have. Take care of what you DO have.

Clean your computer towers or laptops once a year. A tech can open them and clean them out. You’d be shocked at how much dust collects in there. It hampers computer performance.

Always back up your customer, transaction and accounting files beforehand. Always, always.

Take on more rent space ONLY when the business is growing so fast, you’re busting at the seams to keep up with demand (revenues).

Do NOT take on more rental space or buy a building in the hopes customers will show up. This is called “chasing fixed assets”. You do NOT want to fall into that trap.

Care for your fixed assets; don’t abuse them.

No feet on the coffee tables, no shoes on chairs.

No scotch tape on the walls.

Repair, upgrade, make due until you reach beyond break even.

Don’t fall into the trap of overspending on fixed assets for any reason.

If Michael Dell could use his bathtub to house computer componentry at the beginning.

If Norm Brodsky could live with a used desk for twenty years, you can make a few minor sacrifices too.

Celebrate Small Business Success

When the business succeeds, then you can celebrate!

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{ 4 comments… read them below or add one }

Jesse Langel May 28, 2010 at 6:44 pm

Overspending on fixed assets stems from impulse. It could be a serious problem the financially imprudent business owner.

celtic tattoo designs June 2, 2010 at 10:54 am

Good work, keep us posting, you are very good writer.

Dawn Fotopulos June 3, 2010 at 3:05 am

Thanks for the encouraging word! Let us know what interests or concerns you as your run your business. Our goal is to provide updating, relevant information daily.

Dawn Fotopulos June 3, 2010 at 3:11 am

Thank you for your comment and for visiting Best Small Biz How can we make the site more helpful to you?

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