financial ratios

For every company you have ever heard of, there are more than twice as many businesses you never knew existed — and that’s because they failed. One in four businesses (25%) fail after their first year. As many as 36% of businesses fail after their second year, and 44% fail after their third year.

There are a good number of reasons businesses fail. Nearly half (46%) of businesses collapse because of mismanaged funds: poor pricing, lack of performance analysis and planning, no understanding of financial ratios, etc. Sometimes, businesses fail because of circumstances out of their control. The following stories are about two very successful businesses that came very close to failing during their first few years in operation.

The FedEx story
Frederick W. Smith founded FedEx in 1971 with the plan of being the first company to ship packages anywhere in the world overnight. Smith used his own $4 million and raised $90 million to fund his startup.

Fuel costs skyrocketed in the United States over the next three years, causing FedEx to lose $1 million per month. Smith nearly had to declare bankruptcy when the company’s account whittled down to a pathetic $5,000. Having pitched for extra finances and being denied, Smith flew to Las Vegas and decided to gamble that last $5,000 in a game of Black Jack.

Lady Luck must have been on his side that weekend, as on Monday morning the company’s bank account was miraculously up to $32,000. This small amount was enough to allow FedEx to operate for a few more days while Smith secured an additional $11 million to keep the company going. Today, FedEx is worth $30 billion.

The Blogger story
Evan Williams founded Blogger in 1999. He was able to raise enough capital to hire staff and expand the company as the blogging platform generated more interest from the public.

The stock market crashed in 2000, leaving Williams with no choice but to let go of every one of his employees. Willams was motivated, however, and he went back to working on the company by himself until three years later when Google bought the company for millions of dollars.

These business owners were blindsided by unfortunate circumstances and relied on luck to make it through. Today, businesses can use budgeting and planning software to calculate assets and financial ratios, and take care of any and all financial data analysis. With the proper financial planning, your business should never end up in a bankruptcy situation.