Why Businesses Fail and Pitfalls to Avoid
Starting a new business is never easy. The
reality is that over 50% of small businesses
fail in the first year and 95% fail within
the first five years. Why? What goes wrong?
Following are the nine most common reasons
for failure - being aware of these mistakes
will help ensure your success.
Successful businesses are those which understand
and meet the requirements of their customers.
You must understand the needs and wants of
your clients. Learn the basics of marketing
and ensure you track the success or failure
of each marketing technique. Dump those that
Make certain your marketing strategy sets
you apart so a customer can clearly see why
they should choose you rather than a competitor.
Cash flow problems
Many businesses struggle through poor cash
flow management. Most businesses are slow
getting off the ground, so you need to plan
on living for one to two years without business
income. Also, you must create and use a realistic
business budget, and not constantly drain
the business income on personal spending.
Tight control and monitoring are essential.
Poor business planning
A business plan should cover aspects such
as marketing, finance, sales and promotional
plans, as well as detailed breakdowns of costs
and profit predictions. Many business owners
think that dedication and hard work will pull
them through. A global look at the business,
frequently updated, is essential to assure
success. If the skills are not present to
prepare one, no other allocation would be
as effective as obtaining professional assistance.
Maintaining poor books and records
This results in having no conception of
profits, costs, margins, sales or customer
ratios. Thus the business owner is unable
to make intelligent decisions because he or
she lacks critical information.
Good planning means that you've looked at
all the aspects of your business and are prepared
to handle problems when they arise. Your business
plan helps you to focus on your goals and
your vision, as well as setting out plans
to accomplishing them.
Lack of Finances
Insufficient financing often means that
businesses are unable to take opportunities
available to them, or have to compromise -
going for high cost solutions to problems,
rather than lower cost ones that would yield
greater competitive advantage.
Failure to embrace new technologies and new
In a fast changing world, leading businesses
are ones that make best use of advanced modern
technologies in an appropriate way. That allows
them to work more efficiently
Poor choice of location
Location is crucial for certain types of
businesses. A good location is one that appeals
to large numbers of customers, while at the
same time minimising costs. If your business
runs out of commercial space, you need to
make sure that you are convenient to your
customers, and near your suppliers and your
employees, with good easy communication routes.
Weak and inexperienced management is one
of the major causes of business failure. Managers
have to lead a team to be motivated and accountable.
Poor staff relations
Successful businesses motivate their employees
to work hard to help the business succeed.
It is crucial to develop an orientation system
for new employees or to follow through on
personnel development to foster a team spirit.
Business owners must, however, be prepared
to swiftly discharge poor performers without
Lack of clear objectives
Successful organisations have clearly focused
and communicated objectives that enable everyone
in the organisation to pull in the same direction.
The author is a business
coach who has owned and grown successful businesses
for over 19 years. He can be contacted as
0800 781 0414