Of course, there are many reasons why a business fails. But the predominant contributor to small business carnage is failure to understand the financial fundamentals, more specifically, not understanding cash flow or how to capitalize growth.

So, if you don't want to become part of a gruesome statistic, take the following suggestions seriously:

Produce regular (at least quarterly) and accurate financial statements (balance sheet and profit-and-loss).

Hire an accounting firm to help you. Too expensive? How expensive is failure?

Purchase and use one of the financial management software programs. Ask your CPA for a recommendation.

Track sales-to-expense ratios each month in order to know when to adjust spending.

Understand how to monitor inventory levels with regard to projected sales, receivables and cash.

Learn how to calculate Accounts Receivable days and Accounts Payable days, and understand their relationship to each other, plus the impact of that relationship on cash flow and working capital. If your company is experiencing rapid growth, disregard this fundamental at your peril.

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