Do you know what are the reasons for business failures? Almost all of us would rather not talk about failure. But ignoring evident and subtle signs of trouble in a business is a surefire way to end up on the wrong side of the statistics about how many companies make it.
Entrepreneurship is inherently risky, so running a business is not for easily scared people. Successful business owners must reduce the risks unique to their company while also bringing a product or service to market at a cost that meets consumer demand.
The Small Business Administration says that 20 percent of small businesses fail in the first year, 50 percent fail after five years, and only 33 percent make it to 10 years or longer (SBA).
To protect a new or existing business, it’s essential to know what can cause it to fail and how each problem can be solved or avoided.
Most small businesses fail because they don’t have enough money or capital, can’t keep a good management team, have a terrible infrastructure or business model, or try to market themselves and fail.
Signs Of Business Failing?
Dwindling Funds
Any business owner will say the same thing if you ask them.
When your bank balance begins to go down instead of up, it’s one of the first signs that things aren’t going well with your business. Not having enough money is never a positive sign.
Even so, it doesn’t always mean the end of the world. If you just bought new equipment or machinery, it makes sense that your balance is a little lower than usual. Make sure you take things like this into account.
Solution: From the start, keep a close eye on your income and expenses, and make sure you have a buffer for the slow times.
More infrequent sales
You had a great start to the year, making $150,000 in sales in the first quarter. But now you’re getting close to the bottom of the third, and you’ll be lucky to make $50,000. What happened?
Well, there are a few things that could happen.
If you sell something that only sells during certain times of the year, it makes sense that sales will drop after a specific time. On the other hand, if you are selling something that will always be in demand, you should look into it more.
Is there a new business in your field that sells the same thing (or something similar) for a lot less than you? Did you switch manufacturers, and as a result, the quality of your product went down? Put on your detective hat and ask the hard questions.
Solution: Know why your customers buy and be aware of anything that might slow them down, like competition, price changes from your suppliers, new products on the market, or changes in how they buy. Don’t assume that what has worked in the past will always work.
You aren’t getting paid when you should
If you run a business and give customers the option to pay in installments instead of at once, that’s great! You can get customers you might not have obtained otherwise when you offer flexible payment plans. But, like most things, it has both good and bad sides.
On the one hand, if you give your customers a line of credit, you can charge them interest, which can be a different way to make money. On the other hand, you risk not getting paid on time, hurting your cash flow.
If any of your customers aren’t paying on time, it’s time to raise the alarm.
Solution: Review your terms, make collection calls faster, be very careful about giving credit, sell directly to the consumer, borrow against your A/R to cover short-term cash flow problems, and make sure you can handle the time between your bills due and when you get paid.
You haven’t paid on time.
You’re in big trouble if you can’t pay your suppliers, distributors, creditors, or employees on time.
Sometimes, this is a result of the last point because if you don’t get paid on time, you can’t pay other people on time. Because you were late, you now have to pay late fees and interest, which is the next domino to fall. As you can see, things only get worse from there on out.
Solution:
- Work out payment plans with people you owe money to while they are still willing to work with you.
- Don’t use credit until you can afford it and have enough money to cover it.
- Don’t start by borrowing money; wait until you don’t need it, and then it’s probably safe to start!
You’ve used up all of your credit
If all of your credit cards are maxed out, and you can’t find a bank that will lend you money, that’s a sure sign that you’re about to go bankrupt.
Don’t forget that debt isn’t always a bad thing. It is possible (and even familiar) to use debt in a way that helps you build wealth. But you know you’re in trouble when you can’t even make the minimum monthly payments and have to borrow money to keep your business running.
Interest costs a lot of money, so before you borrow money, make sure you have enough money to cover interest and pay back your debts. If you don’t, you’ll get stuck on a treadmill that you can’t get off of.
Ten Common Reasons Why A Business Failure
Not seeking professional advice
Even if you think you know a lot about a subject, you should talk to a professional if you want to start a new business. This will help you figure out if the company is making as much money as you thought.
Most of the time, people start a business because they see others doing it and making money. Yes, they may be making money from the same company, but there may be why. It could be the location, the quality of customer service, knowing where to get raw materials, etc.
It’s good that you have a mentor who will always show you the way, so you don’t make stupid mistakes. When you ask a professional for help, you also get to meet people who have already been in your shoes. They have made mistakes and learned the best way to do things.
Not taking good care of customers
It is essential to put the needs of your customers first. When customers are treated well, a business grows. When you take care of your customers well, they will come back, and when they come back, they will tell their friends.
Customers will go to your competitors if you don’t treat them well. Figure out how to show your customers how much you appreciate them. Always ask them questions about the product and give them a small discount if they review it (either positive or negative review).
If you don’t know your customers well and treat them like every other seller does, they will only come to you when they have no other choice. Many businesses have failed because of subpar customer service.
Copying others
People often start businesses or make business decisions because they see other people doing it and think they can be successful at it too. It’s good that you add your idea after talking to other people about it. When you copy without asking, you end up at a dead end.
Lack of experience
A business fails because the owner doesn’t have enough experience. If you don’t know what you’re doing or your management team is made up of newbies, your business might as well be dead.
If you want to start a new business, it’s best to hire people who know what they do. They could be your business partners or work for you. Get good marketers and people who know how to help customers.
Unaccountability
You have to answer for every penny your business makes. Business owners couldn’t explain how much money they made each day most of the time.
When they make a sale, they use the money for their own needs, hoping to make another sale. Make sure you plan out how you will spend your money. If you want to grow your business, 60% of your profits must go back.
Lack of personal growth
Many business owners don’t put money into themselves. They want to be great, but they don’t read, don’t do research, and don’t go to seminars or workshops that can help them learn more.
It is essential to work on your attitude and communication skills. You won’t be able to do well if you don’t take care of and work on your attitude. No one gets ahead in life if they don’t keep learning new things.
Poor location
There was a business owner in the area who ran a coffee shop. His coffee is good and not too expensive. He gets along well with his clients. But over time, his coffee shop didn’t grow, and it was hard for him to keep it going, so he decided to sell it.
Another 29-year-old business owner who had enough money to invest thought he could make the coffee shop profitable by putting more money into it and making it look fancier. He also couldn’t make money in the coffee business. Why? Due to where the company is.
In the end, you can’t start a business if no one needs your service. People won’t come to you just because you have style. Before deciding where to put a business, it’s essential to do a good market study.
Lack of focus
Too many small tasks can make it easy for entrepreneurs to lose focus. Every time they lose focus, their thinking gets smaller. A good business owner or entrepreneur never loses sight of what’s most essential and where their priorities lie.
Their weakness is when they try to be perfect at things that don’t matter and should be left to others. Entrepreneurs should learn how to give jobs to other people. When doing this, instead of becoming an obsession, it’s easy to see how shortsighted someone is.
Wrong expectations
Some new businesses were told that all they had to do was open for business, and money would start coming in without doing anything. Sometimes the person is to blame because they only hear what they want to hear or think they know better.
In the end, it’s not a 60-yard dash but a marathon to build a successful business. If you don’t want to die poor or watch your business fail, you must work hard.
Quitting too soonuitting soo
This is the most common cause why businesses fail. You might not be successful in business if you don’t keep going, ask questions, do research, fall, and try again and again. First, you should know that it will never work out if you do something halfway. You have to work hard against all odds to make a business stand.
Lack of money is another problem that has caused many businesses to fail almost as soon as they open. Many business owners build the fatal mistake of starting up without enough money to run the business. Such companies don’t last long because the people who start them give up quickly, especially if they have big competitors.
Before you start a business, I think you should tell yourself, “I will do whatever (Positive) it takes to succeed.” Find out why startups need to think positively. This way of thinking will help you widen the scope of your business.
FAQ
How often do small businesses fail?
About 20% of small businesses fail in their first year, 50% fail within the first five years, and only 33% make it to 10 years or more.
What kinds of small businesses fail most often?
The industries where the smallest businesses fail are wired telecommunication carriers, printing, clothing and leather manufacturing, and communications equipment manufacturing.
Conclusion
Sometimes you may have an idea about what are the reasons for business failures. There are other reasons or factors that could cause a business to fail, but from my years of business experience, the above 10 are the most common ones. If you can get past the things on the list, you won’t be far from being successful in business.
Please let us know your opinions in the comment section below.
