10 Reasons Why Businesses Fail And How To Avoid Them

It is a matter of fact that significant percentage of new businesses do fail. When you are starting a new business, the last thing you want to focus on is failure. No matter what you do, there will always be a risk of a business failure or less-than-expected financial return. No one starts out thinking that it will happen to them, but inevitably it does. There are some common reasons that can lead to business failure and I am going to discuss these reasons and how you can deal with them on this page today. If you address the common reasons for failure up front, you will be much less likely to fall victim to them yourself. Failure 1: Lack of Knowledge and Planning (Expertise): It sounds simple, but the number one reason why businesses fail is because the business owner did not take the time to learn his business. Some 71 percent of businesses fail because of poor planning and a lack of specialized knowledge that the particular business requires. Keep in mind though, that just because a business owner does not have the knowledge, does not mean the knowledge does not exist. It simply means that the business owner failed to take the steps to find it. The first key to survival is to make sure you know what you are doing when it comes to the business you choose. Anyone who has ever been in charge of a successful major event such as marriage/wedding, funeral, political campaign etc knows that were it not for their careful, methodical, strategic planning, and hard work, success would not have achieved. The same could be said of most business successes. It is critical for all businesses to have a business plan. Many businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future. Things to consider may include description of the business, vision, goals, Work force needs, Potential problems and solutions. More so, most bankers request a business plan if you are seeking to secure addition capital in form of loan for your business. Tip - Get the best training you can find and write a solid business plan. The upfront investment in training will be well worth the money you will spend. You can do this on apprenticeship basis or attending business seminars/workshops. Failure 2: You start your business for the wrong reasons: Would the sole reason you would be starting your own business be that you would want to make a lot of money? Do you think that if you had your own business that you would have more time with your family? Or maybe that, you wouldn’t have to answer to anyone else? If so, you’d better think again On the other hand, if you start your business for the reasons below, you will have a better chance at success in your business: You have a passion and love for what you will be doing, and strongly believe, based on educated study and investigation that your product or service would fulfill a real need in the marketplace; you are physically fit and possess the needed mental stamina to withstand potential challenges. Often overlooked, less-than-robust health has been responsible for more than a few bankruptcies; you must have the drive, determination, patience and a positive attitude. When others throw in the towel, you are more determined than ever, failures do not defeat you. You learn from your mistakes, and use the lessons you learn to succeed the next time around. I have discovered from true life research that successful business owners attributed much of their success to “building on earlier failures;” on using failures as a “learning process”, you thrive on independence, and are skilled at taking charge when a creative or intelligent solution is needed. This is especially important when under strict time constraints. Failure 3: Insufficient Capital: A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. You must first recognize the fact that your first and foremost goal should be business survival. And business survival means adequate startup cash and ongoing cash flow. It is essential to determine how much money your business will require; not only the costs of starting, but the costs of staying in business. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. Tip - Choose a business that has very low startup costs and minimal ongoing costs. That way, it is easier to make the business profitable and successful. Also, if it does not work out, you have not hurt yourself too badly and you can move on to the next venture with good lessons learned. Failure 4: Poor Management: Management comes down to two things: competence and experience. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, hiring and managing employees. You also need to know how to manage your time. Tip: First, work with an experienced mentor or coach to learn specifically how to manage the business you are getting into. Second, do not start a business that immediately requires employees; learn to manage it yourself first. Failure 5: Location, Location, Location: Location is critical to the success of your business. Whereas a good location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the best-managed business. If you open a business in the wrong location, you have lost the game. Some factors to consider are: Where your customers are, Traffic, accessibility, parking and lighting, Location of competitors, Condition and safety of building, community flavor and receptiveness to a new business at a prospective site among others. Failure 6: Overexpansion: Overexpansion often happens when business owners confuse success with how fast they can expand their business. This is one of the leading causes of business failure. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies. Failure 7: Lack of Someone to Look Up To: There are always people who have succeeded in the kind of business you run. Not learning from them is ridiculous. Why not find out who they are and how they succeeded. Don’t be a star in your own mind, especially if you know you are not one. Heroes and go-to people are important, motivational and can help business people re-energize and avoid failure. Failure 8: Getting into Undesirable or Bad Business Partnership: You should get into business partnership only if you find that your ideas match with the probable partner, because business partnerships are even more difficult to maintain than marriages. Many partnerships fail because of lack of communication, proper documentation and conduct. A failed partnership can lead to bankruptcy and soured relations with the business partner. Tip: Avoid partnerships completely, if you possibly can. But if you must get into a business partnership, make sure the duties and responsibilities of the partners are detailed right from the start and the partnership deed along with commercial terms is clearly defined. Failure 9: Life distractions The best ideas do not always come between 9am and 5pm. A person might have a great idea while driving, or in the shower, or while working out. It is moments like these when an entrepreneur leaves behind the day-to-day tasks of running a business and gains a better perspective of the big picture. Sadly, there are a lot of things that can disrupt a person’s home life. Illness, death of a family member, divorce, relationship trouble, and problems with a child are just a few of the many issues that can affect a person’s mindset. When things like this occur, moments of clarity are replaced by stress and anxiety. Many entrepreneurial ventures depend heavily on new ideas and creative thinking, and when an entrepreneur’s head is not clear, business can suffer. Failure 10 Bad feedback & white lies People like spending time with friends and family. Unfortunately, when it comes to business, friends and family members do not always give the best advice. This is especially true at the birth of a business. No one wants to tell an entrepreneur their idea is bad, or their location stinks, or anything else negative. Most people are conditioned to be supportive of their friends and family regardless of the situation. Plus, nobody wants to be wrong. Imagine your friend has an idea that you think is terrible. You share your objections, but the friend goes ahead with the idea anyways, and it succeeds. Now you will always be the pessimist that never believed in them. Nobody wants to be that person. That is why you will rarely get honest, objective business advice from friends or family members. And yet, oftentimes friends and family are the first people entrepreneurs turn to for advice.