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2. Discuss the red flags for a small business related to business failure and bankruptcy. The high failure rate of small business start-ups is a major concern for many entrepreneurs, reason why they should be sensible to red flags in the business and the environment that may be early warning signs of trouble. Before engaging in new ventures entrepreneurs have to make sure that they are choosing a profitable sector, have enough cash reserves, and anticipate the price, the competitors, and the changing behaviors of consumers. Also, it is important that the entrepreneurs pay close attention to following red flags because they can be signs of bankruptcies:
 Finances are becoming so lax that no one is able to explain how the money is being spent.
 Directors cannot document or explain major transactions.
 Large discount are given to customers to enhance payments because of poor cash flow.
 Contracts below standards amount are accepted to generate cash.
 Bank request subordination of its loans.
 Key personnel leave the company.
 Materials to meet orders are lacking.
 Payroll taxes are not being paid.
 Suppliers demand payments in cash or in advance.
 Complaints from customers regarding the quality of product, service, or price.
When an entrepreneur sees any of these signs he should immediately seek the advice of a Certified Public accountant (CPA) or an attorney, because generally unrelated one problem often lead to another one. Many young entrepreneurs have unrealistic expectations and forget that a new venture usually take at least a year to develop a profitable business, they often forget that small business with fewer than 20 employees tend to spend at least 45% per employee than larger firms due to federal regulations. Small businesses bear a disproportionate burden when it comes to costs of federal regulations, compared to larger firms...

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