One reason businesses fail is simply that they sail too close to the wind. All they need is a little bit of bad luck – a tough six months, a key client who pulls their account, a senior staff member who leaves for a rival firm, and they find that they simply don’t have enough cash to survive.
Too often businesses have fabulous sales, but just didn’t have enough cash in reserve. The result? They go under.
Warren Buffett likes to call this ‘Margin Of Safety’. When he invests in a business he makes sure the deal makes sense even if the company performs well below expectations. he doesn’t just depend on things going right, he builds in the chance that things will go very wrong.
We all need to do the same.
via Why Businesses Fail..