7 Common Reasons Businesses Fail

7 Common Reasons Businesses Fail


When you're starting a new business, the last thing you want to think about is failing. But if you address the common reasons for failure up front, you'll be much less likely to fall victim to them yourself. Here are the 7 most common reasons why startup businesses fail:

  1. You start your business for all the wrong reasons – Why are you starting your business? Are you starting a business just because you can, or perhaps to fulfil someone else’s wishes? Starting a business involves a lot of hard work and if your hearts not in it then your business can lack vision and focus.
  2. Poor organisation and management – Focus, vision, planning, standards and everything else that goes into management are extremely important in business. Fighting partners or unhappy relatives can spell disaster for your enterprise.
  3. Insufficient Capital – In simple terms, do you have the money to sustain your business? During the early years, and seasonal downturn. Most entrepreneurs severely underestimate how much capital their new ventures will require to get off the ground. The first 3 years of your businesses estimated cash flow projection is a critical early step to evaluate how much money will be required. It is important to have a trusted third party validating your projections.
  4. Lack of planning – Who are your customers? How are you going to reach them? Is your product or service seasonal? What will you do off-season? Do your customers continually purchase from you, or just the once? Do your customers buy on impulse or does it take them a long time to close a sale? They are all things you must know in advance and plan for.
  5. Over expansion – This can happen a lot and is possibly the saddest reason for failure in new businesses. This would include moving into markets that are not as profitable, experiencing growing pains that damage the business, or borrowing too much money in an attempt to keep growth at a particular rate.
  6. Over confidence - Underestimating the competition – Caution is key. Over confidence can also lead to unmanageable growth. For example, even if your business is stable and thriving, think twice before expanding into other markets. In addition, if you borrow too much money in order to keep your profits high, you could end up in a money hole.
  7. Lack of communication - Good communication between you and the customer as well as members of your team is essential. For your team this starts with picking the right people for the job. Putting together a productive team means analysing everyone’s strengths and weaknesses and figuring out if they will work well together. Additionally, you should make sure everyone knows his or her role within the team. The best way to do this is to establish an open line of communication between you and them from the very beginning. Your customer need to know exactly what it is you sell, what your services are and if there’s a problem, who to get in contact with. A break down in these elements will equal an unhappy customer and bad business acumen. 

In short, while this article doesn’t contain all of the reasons businesses fail; it should serve as a dose of reality to you entrepreneurs. Creating a new business is an adventure, and like any great adventure it comes with both risks and rewards. However, with the proper knowledge and tools, you can negate many problems before they even show up. What do you feel are the hardest obstacles to get around as a business owner/manager?