Why small businesses fail

(Fortune Small Business) — Last month I wrote about Debbie Dusenberry, owner of Curious Sofa, a home-furnishings boutique in Kansas City, Kans. The store has a reputation for great products and imaginative display, and its revenue had been growing nicely for eight years.

But when Dusenberry sent me her financials, she included this plaintive note: “Our January was down 20%, and for the first time I am a little worried….If I had any reserve, I wouldn’t be nearly as concerned….[We're] cutting back anywhere we can by freezing spending, and I laid off my first employee in eight years.”

Dusenberry’s financials explained clearly why her business has potential – and why she’s in trouble. The store’s annual revenue has grown to more than $800,000. Her labor costs as a percentage of revenue are a little high, and she probably needs to lay off another employee. The rent isn’t terrible, although I think she can get her landlord, who clearly doesn’t want to lose a tenant in this economy, to cut her a break. But here’s the thing: Her statements show that she’s lost money eight years in a row. Shes needed to order checks so that she can track her expenses with.