Why do so Many Businesses Fail

Why do so many businesses fail. 

The question we may often ask is Why do so Many Businesses Fail. It doesn’t matter what the industry or the size we hear or see on an almost daily basis of another business failure. We hear of the collapse of a large corporation, or we see the corner store displaying a closed for business sign.

Boorders Closing

 

What are the causes of failure?

1. Choosing the right Business and Market

Some businesses look to be busy, for an example a store may see a lot of through traffic but at the end of the day, little in the way of actual sales. The outcome no profit to ensure ongoing success.

Maybe the product or service relies on seasonal factors. Are the profits enough to carry the business through the off seasons or there is another product or service that can fill the gaps?

Store Closing

Are customers a one-off, are they impulse buyers? One off impulse buyers are ok if the market has a large potential customer base. If not once the customer base is exhausted so is the business.

Choosing and monitoring your market prior to commencing is essential, a successful business entrepreneur, knows and understands his or her market even before he or she opens the doors.

2. Lack of Cash Reserves

Lack of Cash Reserves is a Major killer of any business; most businesses will take six month or more to break even.

Some products sold are on credit from suppliers. Suppliers have strict payment terms, for example, you may get paid in 60 days, and your supplier demands 30 days, are there enough cash reserves to carry the business through this period.

Overheads, personal living costs continue, unforeseen expenses will come alone, without enough cash reserves the likelihood of failure increases.

3. Incorrect Pricing

There is a fine line when getting your price structure correct; it’s easy to price too low or even too high; both can turn potential customers away.

Understanding your market before commencing is critical, spend the time to know your product and your customers. Watch for similar products or services and look at how your competitors structure their pricing.

4. Diversification

The market is constantly moving, customers tastes are fickle and easily change at the slightest change in technology. What is the competition doing?

Failing to keep up with the market and diversifying your product or service is a sure way to fail.

5. Limited Customer Base

Businesses that rely on one customer are in a precarious situation while the relationship may be good, and profits are coming in it can all change overnight.

Expanding the customer base will ensure the longevity of the business.

6. Rapid Growth

Every business wants growth; expansion is one thing most businesses will have a plan for.

Rapid unplanned growth can stretch resources leading to a drop in product or service quality overextension of finances, and can cause the turning away of customers.

Growth should be slow and steady, predicted and manageable. Rapid growth should always be well planned, but it will require experience and adequate resources.

Unplanned growth can leave a business unprepared a potential for failure.

7. Doing it all

As a startup entrepreneur, we often find it hard to let go, as a business grow we can’t do everything.

While we always want to “keep or finger on the pulse” sometimes we need to look at and focus on what is critical. Other activities can be delegated or even contracted out, look at your management activities and see what you can let go.

Stress and illness are a downfall for many, overworked business owners don’t be a statistic, always look after yourself first.

8. Commitment

Owning and operating a business can be a lifelong commitment, long days and often weekends and long hours into the night will be required. Many business startups lack the commitment for the long haul, often having unrealistic expectations and expecting instant returns

9. Right and Wrong Reasons

Often a new business entrepreneur has unrealistic expectations and goes into business for the wrong reason, which often leads to a business failing.

Reasons can include;
Make more money, while this is a good reason don’t expect, the floodgates to open, and the money comes pouring in. A business will often take six months or more to get a return on investment.

Profit Loss

More time, yes we all want more time to spend with our loved ones or doing the activities we want. If you expect to have an abundance of free time you are wrong. Being in business is time-consuming and time is your biggest investment. If you want time to do what, you want then plan for it, make a schedule include free time, just make sure it does not detrimentally affect your business operation. Business operators who don’t invest time lack commitment and soon are doomed, for failure.

Want to be in control and don’t want to answer to someone else. Great but be careful as a business owner we are answerable to our customers and suppliers. While a business entrepreneur is in control of his or her destiny, often he or she must be flexible to change and give in even if he or she knows the are correct.

10. Business Planning

The best way to avoid business failure is to plan correctly, “Failing to Plan is Planning to Fail”. Good planning includes investigating your market, developing a marketing plan, read our article on Building a Market Plan

Prepare an accurate Financial Plan read Business Budget Planning and Managing Cashflow 

A well planned and written business plan is an essential tool for any business to succeed read Business Planning for Success

A good business plan is a roadmap for the future highs and lows will have been anticipated, and a strategy will be in place on how to deal with these potentially threatening situations.

A key to the success of any business is the commitment of the business owner; a committed owner will diligently research his market and carefully plan and capture every likely scenario good and bad.

Commitment means putting in the long hours, making sacrifices in standards of living, free time using his assets of time and money wisely for the benefit of his or her business for know and the future.

Having commitment will ensure your businesses success, and you will be the one to reap the rewards of that success in the future.


About Darren Wilkins

Darren

Darren is a semi-retired senior executive and serial entrepreneur who runs a number, of successful businesses both online and offline.

With 30+ years experience in management and as a management consultant Darren has a can-do attitude and offers real practical advice that can be used for any business no matter the size, Darren is using his time focusing on online opportunities and building better businesses.

With global experience managing and directing multimillion-dollar mega construction projects and businesses. Darren has a wealth of practical experience to share and wants to help you and your business.  


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