What is the most common cause of business failure?

Businesses fail for many reasons including lack of money, changes in the economy, ineffective management, employee turnover, theft, illness, or death of the owner are just a few. H

What is the most common cause of business failure?

Businesses fail for many reasons including lack of money, changes in the economy, ineffective management, employee turnover, theft, illness, or death of the owner are just a few. However, the main reason seems to be ineffective management whether it is poor planning or not understanding how to run a successful business.

Research, locating resources, understanding the financial statements of the business, writing a winning plan to receive funding, knowing what customers want, knowing what the competition is doing, watching industry trends, hiring the right team, pricing products correctly, and more are all part of the business plan. There are often warning sings months or years prior to a business failing, but some owners are too wrapped up in day-to-day operations to notice them.

Here are some common pitfalls to look out for:

  • Watch out for your cash flow and financial trends: if you do not have enough money to pay the bills on time and have some left over to take home, then it is time to look for ways to increase your income, reduce your expenses, or find funding from investments or loans.
  • Get customer feedback: find out if the customers are satisfied with the service or if they plan to shop another place. Be specific and ask what can be done better to keep them shopping with you. Do not forget to manage your businesss online reputation as well.
  • High employee turnover: if many employees are leaving, ask them why, and look into resolving the issues to decrease the turnover.
  • Is your advertising getting cut because money is tight? It is difficult to reach new customers without any advertising so look for another alternative. Find out how customers are finding your business and focus marketing efforts on those mediums.
  • Inventory on the shelf: if you have inventory on your shelf for too long, try to discount it and sell it to make room for other items your customer will be interested in buying.
  • Increase in costs but not prices: it might be time to increase prices or find cheaper suppliers or offer alternative products.
  • Copying others: many people go into business or made a choice because they saw other people doing it and they thought they can be successful in it if they try.
  • Poor location: location is important because it can make or break the difference. A good market survey is required before you choose a business location.
  • Not seeking professional advice: it is important that you seek professional advice no matter how informed you are. This will help you ascertain whether or not the business is profitable as you thought. They might be profiting from the same business but there might a secret behind the success. An advantage or working with a professional is that you are meeting people who have already done the business and made the mistakes so that you can avoid them.
  • Not knowing when to say no: you need to have focus on quality, delivery, follow-through, and follow-up to serve your customers well. Going after all the business you can get drains your cash and reduces overall profitability. Sometimes it is okay to say no to projects or businesses so you can focus on quality and not quantity.
  • Quitting too soon: another big reason why businesses fail is quitting too soon. If you do not persevere, research, fail and try and try again, you might not be successful in business. Also, many entrepreneurs make the mistake of starting a business with inadequate operating funds. These businesses do not last as they are easily discouraged by bigger competitors.

The Bottom Line

Running a business is no easy task. Being aware of common downfalls in business can help you proactively avoid them. It is a constant challenge but also an opportunity to avoid being a part of the statistic of business failure. You can also get help from an accountant or business consultant. Successful business owners are proactive in their business and deal with issues. Do not wait until it is too late and start today.

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