Starting a Business / Advice / Ten Common Causes of Business Failure

Ten Common Causes of Business Failure

  1. Going into business for the wrong reasons. Are you starting a business just because you can? or perhaps to fullfil someone else's wishes? Starting a business requires alot of hard work so make sure you are doing it for the right reasons.
  2. Choosing a business that isn't very profitable. Its one thing to start a business, however make sure it’s a business that is profitable. Even though you generate lots of activity, the profits never materialise to the extent necessary to sustain an on-going company.
  3. Inadequate cash reserves. This is the single most common reason why business fail. If you don't have enough cash to carry you through the first six months or so before the business starts making money, your prospects for Success are not good. Consider both business and personal living expenses when determining how much cash you will need.
  4. Failure to clearly define and understand your market, your customers, and your customers' buying habits. Who are your customers? You should be able to clearly identify them in one or two sentences. How are you going to reach them? Is your product or service seasonal? What will you do in the off-season? How loyal are your potential customers to their current supplier? Do customers keep coming back or do they just purchase from you one time? Does it take a long time to close a sale or are your customers more driven by impulse buying?
  5. Failure to price your product or service correctly. You must clearly define your pricing strategy. You can be the cheapest or you can be the best, but if you try to do both, you'll fail.
  6. Failure to adequately anticipate cash flow. When you are just starting out, suppliers require quick payment for inventory (sometimes even COD). If you sell your products on credit, the time between making the sale and getting paid can be months. This two-way tug at your cash can pull you down if you fail to plan for it.
  7. Failure to anticipate or react to competition, technology, or other changes in the marketplace. It is dangerous to assume that what you have done in the past will always work. Challenge the factors that led to your Success. Do you still do things the same way despite new market demands and changing times? What is your competition doing differently? What new technology is available? Be open to new ideas. Experiment. Those who fail to do this end up becoming pawns to those who do.
  8. Overgeneralisation. One sure way to ruin your business is to be everything to everyone. Spreading yourself too thin diminishes quality. The market pays excellent rewards for excellent results, average rewards for average results, and below average rewards for below average results.
  9. Uncontrolled growth. You may not realise it a first but too much business can actually destroy it. Hard to believe? Going after all the business you can get drains your cash and actually reduces overall profitability. You may incur significant up-front costs to finance large inventories to meet new customer demand. Don't leverage yourself so far that if the economy stumbles, you'll be unable to pay back your loans. When you go after it all, you usually become less selective about customers and products, both of which drain profits from your company.
  10. Believing you can do everything yourself. One of the biggest challenges for entrepreneurs is to let go. Let go of the attitude that you must have hands-on control of all aspects of your business. Let go of the belief that only you can make decisions. Concentrate on the most important problems or issues facing your company. Let others help you out. Give your people responsibility and authority.