August 15, 2008
Last Revised: May 23, 2012 4:50 PM
Poor handling of money has often been the primary cause of business failures. It is often expressed in different ways, but here is a typical web article:
10 Causes of Small Business Failure and How to Avoid Them
There are a variety of reasons why a small business often fails. There are some steps that small business owners can do to avoid them. Here are ten causes of small business failure and how to avoid them.
1. Most small business owners don't have enough money saved up. You need to save up at least six months of worth living expenses along with six months of worth of expenses for your business too.
I have found, in the 20+ years I've been operating Vibrant Life that "money and finance" are the subjects which have gotten us into the most trouble, and the primary reason for this has been that I have not adopted and used Hubbard Management System Policy for Finance and Treasury.
Within the area of "Finance and Treasury" improper use of Company Credit and Company Credit Cards -- these have been the central core of problems of magnitude -- including that a person I considered my very best friend, hired at VL, appointed as a Vice President, misused his business credit card, cost VL many thousands of dollars, refused to take responsibility for what seemed to him to be simple "mistakes" and with whom I have not now spoken for more than a year -- a man I called my "best friend."
With my own daughter, hired into VL, eventually appointed as the Executive Director with a firm and written plan for her to take over ownership of this million dollar business? After a messy divorce she had a guy move in to live with her who was earning less money than she, he then encouraged her to take Company money she, in her right mind, would not have taken, she then used her Company-issued business credit card to rent a car for him and bought more than $22,000 in furnishings for her home (claiming she had paid it back -- but no proof of such payments), took the ATM card I gave her and embezzled more than $15,000 from a savings account -- and on it went -- to the situation that I have not spoken to her for more than 2 years and she hangs up on calls from Bonnie.
There have been others, very highly trusted and very good friends, hired, engaged in financial irregularities with credit cards -- thousands of dollars lost to VL.
My justification has been that since I was the owner, if I made any mistake, there was no other person to absorb my mistake -- I had to make it go right. Since I have made it go right for these many years it would be tempting to expect that my successors could do the same.
Unfortunately I have found exactly the opposite to be the case. My daughter, Maia, built up enough small transgressions against the Company that she quit -- the usual result of an accumulation of such overts.
My daughter added other overts, quit and we no longer speak. She hung up on a call from the mother who raised her, Bonnie (now three years later) and now has not returned a message. Her brother, Garth, has tried to get her to call, but no luck. I've lost a daughter. She has "forgotten" all the details and now claims that it was "her" money so that it was OK for her to take it.
Around the same time we had hired Tracye Bell, a former employee of Vibrant Life and a long-term very good friend -- hired her as Deputy ED to Maia's position of ED. Tracye was well trained in very senior Hubbard Management Technology and I hoped she could teach my daughter to use it.
Maia did not need training; she needed to admit her transgressions.
My daughter did not respond to this effort to help, possibly because she was already planning to quit.
Tracye, after a few weeks, came to me to report that she didn't think Maia was willing to use the Hubbard System help which Tracye thought to give. So, I appointed TRACYE to be the ED, "hoping" that Maia would come to her senses.
Maia was continuing to commit those overts, not known then to me, and was preparing to quit -- stats were down, but I gave Tracye a business credit card and paid some $20,000 on her behalf -- a loan which she promised in writing to repay.
Unfortunately, Tracye, also, got some of the bad habits from Maia, used her Company Amex Card to buy Christmas gifts for her family, later claiming that she was going to pay it all back. But, by this time stats were down and the reserves I had to pay Tracye's salary were soon to run out.
NOT more than a year before this, Bonnie lay dyeing of cancer, while I was a full-time caregiver for Bonnie I trusted Maia and Tracye to run the Company. Maia signed all Company checking accounts and paid all bills. I did none of that.
Then Bonnie miraculously got rid of her cancer, then had throat surgery, I had hip replacement and Bonnie and I decided to celebrate our new life by going on a Caribbean cruise. We returned in January, AFTER much of the damage had already been done. We found the Company in shambles with down stats, then DISCOVERED more and more of the overts which had been committed by Maia and Tracye, not reported to us by those who were close enough to see (?) until I uncovered them myself to my dismay.
Within one terrible month, I had to fire Tracye for theft and for not getting the stats up, and Maia quit.
Maia quit and was therefore NOT entitled to unemployment, but claimed it anyway, and it was paid for some six months. I fired Tracye for cause, and she repaid SOME of what she owed, but then stopped and still owes me about $5,000. We have lost a daughter and a very good friend -- I can only look back now at how reasonable I was in allowing these things to happen.
I cannot imagine a worse Hell than for me to discover that my close friends, the current VL Staff, would have gone the same way my own daughter and close friend, Tracye, went.
As I move more into retirement, I find that I have a great deal of admiration for all the current Vibrant Life staff.
Yet, I know that very close friends can turn sour and commit enough overts to quit and destroy the Company in the process.
My daughter's overts were simple -- including that she took money that was not hers to take. Tracye's overts were also simple -- she BORROWED money with a promise to repay, I trusted her and she then TOOK money by charging Christmas gifts for her family on the Business Credit Card. She still owes me money. These overts, while simple, were hidden and both Maia and Tracye knew the other was doing some of them -- and did not report it to me.
As I move into retirement and further away from EVEN KNOWING what is going on in the small details of operations, and counting on people I have come to know and admire, it will be very easy for any Staff Member to justify small overts that generally lead to further justification, but for larger overts, and then they blow -- quit.
Treasury functions are the ones where these overts will most often be most visible.
Someone with a Amex Card buys something within Policy; then they buy something not within Policy, but it is small and I do not catch it, or I am reasonable about it and do not complain; or it is large, necessary for the Company but NOT ON POLICY, so because it was "necessary" I become reasonable and let it slide.
Soon enough the Company will be in trouble from the accumulated and unhandled overts and I will be too far removed in terms of time and ability to take back control.
THEREFORE: I am now starting a series of new Company Policies that will put much more Hubbard Management System in place, particularly that part of that system that governs money and finance -- the Treasury functions.
I list a few of the changes that I will be making. These are designed to increase the survival potential of Vibrant Life as well as to protect my retirement income.
First: There are a whole series of Hubbard Policies on Financial Planning. I will gradually find the ones that most apply to us and publish them as VL Company Policy. Probably the most basic on Financial Planning is on page 271, OEC Vol 3, HCOPL 26 November 1965, rewritten 31 October 1982.
Second: Even though I am eager for others to take over responsibilities for Vibrant Life operations -- in full -- the Finance and Treasury functions will be the ones I hang onto for the longest. I believe that poor planning and inadequate CSWs are often urged on the Treasury Department because the item is so urgently needed and that when Treasury moves slowly (as LRH says they should) the pressure from those those who do that poor planning CAUSES THEM TO expect and demand unusual remedies rather than the standard Treasury Policies. With ME retaining the Treasury functions I believe I can insist that everything that comes to me with a hint of demand for "quick cash" will be met with a standard, "Do it over and do it right." And, "Don't ever claim that THIS delay caused your down stat!"
Third: I started depending on "credit" many years ago -- a foolish violation of many Hubbard Policies. As quickly as it can be done I will want Vibrant Life to cease any use of credit and make purchases, including inventory, by payment at the time of the order. This includes the eventual elimination of all Company credit cards and the insistence that no staff member will be allowed to incur any Vibrant Life obligation to pay any money -- instead it will be a TREASURY person who establishes that financial relationship with a vendor. This change will be almost impossible without a considerable increase in stats so that the increased profit can be used to pay in advance for these items. It may mean that I build up a special Company Reserve for "Inventory Reserve" so that we can make this change all at one time with each of our vendors -- one at a time.
Probably to find we may get better prices from this.
Fourth: While I, personally, have been unsuccessful in implementing the Profit Sharing System I designed, I can implement on an immediate basis the "financial plan" I described HERE when I published the Company Policy about Make-Break Point and the possible cut in staff salaries that could be automatically triggered.
An alternative profit sharing system is HERE.
These four areas, when subjected to the new Company Policies, should greatly increase the long-term survival of Vibrant Life. They may, however, be "discomforting" to some.
One LRH quote may set the stage for these upcoming changes:
Demands For Funds
As in my experience an organization always spends all it makes, financial management on an international level (from my retirement) consists not of carefully balancing income above outgo in an effort to save a surplus in an organization but of (a) preventing an org from spending more than it makes and (b) setting aside enough money from its income to care for salvage operations and salvage expenses.
Part (a) is done by good financial supervision.
Part (b) is done in an international level (from retirement by KL) without any regard whatever for the protests and "financial necessities" of the org in question. An organization whether Standard Oil or any other will always spend all it makes and try to spend more. The task is on the one hand to keep it from spending more than it makes and on the other to make some of its expenditures recoverable in cash.
Never, on an international basis (FROM RETIREMENT), be so fatuous as to believe an organization will continue to have the difference between its income and its outgo. It will never have that. It will spend it in some way.
An avalanche of reasons it must not save money or (same thing) why it must spend it, is routine and is to be expected. "The government will tax it," "We can't get auditing rooms," and a thousand other reasons may be advanced as to why the org must spend all its money.
L. Ron Hubbard
Source: HCO PL 18 January 1965, FINANCIAL MANAGEMENT, BUILDING FUND ACCOUNT Page 43, OEC Vol. 0.
I have removed any regular salary from the payroll for either me or Bonnie -- will now depend on the "retirement pay" which is already in FP No 1, and will be slightly revised.
I have started, today, an automatic savings of every week, taken out of the CalNat Bank Accounts. All other payments, excluding my retirement pay and but definitely including staff salaries are junior in priority to this automatic savings "expense" each week. The amount taken starting now, is subject to review when a stable FP No. 1 is established.
My purpose here is to ensure the long-term survival of Vibrant Life and its Staff (including my own personal retirement income).
Quotes from L. Ron Hubbard are copyright 1994 © by the L. Ron Hubbard Library. All rights reserved.