The Reasons Why Most Businesses Fail
Every single day, many businesses fail for numerous reasons. According to the United
Statesâ Small Business Administration (SBA), approximately 90% of all small
enterprises fail within the first two years of operation, primarily because many
entrepreneurs lack the basic knowledge and experience in handling the challenges
of their company in its initial stages. The following are several common problems
that are encountered during this vital preliminary phase. Business owners should
be informed about these issues and work diligently to address them in order to avoid
Careful planning is essential to success and is reflected by an enterpriseâs
stability and profitability. Often times, entrepreneurs are so eager to launch their
businesses that they neglect extensive preparation, which includes devising a well-developed
business plan. This business plan should describe and illustrate the vision for
your business, while convincing others to assist you in attaining that vision. The
first priority before operating any business is to devise a carefully constructed
and well-detailed business plan to ensure a companyâs success and productivity.
Another frequent mistake that many small businesses make is underestimating the
amount of necessary funding needed for their companyâs start-up. This lack
of funding will immediately restrict any business capacity and will greatly threaten
a businessâ potential growth and stability. Entrepreneurs should always identify
and try to properly estimate the amount of money needed to launch their business.
It is imperative to ascertain the amount of money a business will require, which
includes not only the costs of starting the company, but also the expenses it will
take to stay in business. Entrepreneurs should also avoid starting their business
if they have insufficient capital to cover costs for at least one year. Â
Poor marketing strategy
It is completely feasible to initiate a business that sells the best products and
services at a competitive price; however, a company can still be at risk for failure
because the targeted customer base may not be aware of the products and services.
Advertising is vital for a businessâ success, and if the entrepreneur isÂ
unaware of how to properly sell their products to the public, they should seek assistance
from a marketing/public relations expert who can help them promote their business
effectively. In addition, the number of internet users and e-commerce sales has
drastically risen in the past few years. Every company should have a professional
looking website where customers can easily find out about the business, locations,
products, and services offered.
For many successful businesses, the capability to maintain an accurate inventory
of goods is unequivocally correlated to the dependability of an entrepreneurâs
suppliers. It may be challenging at first to deal with irresponsible providers,
but through proper networking and research, an entrepreneur can successfully cultivate
efficient supply channels to find reliable people whom they can work with. It is
critical to maintain effective relationships with suppliers for the operation of
any company and to actively seek trustworthy dealers if a corrupt one exists.
Lack of credible employees
Labor is the largest expenditure for many small businesses. A company should employ
an accurate amount of workers with the necessary skills and credibility for their
given field. If a company is overstaffed with many unproductive employees, they
will be wasting money for unnecessary labor costs. If there are too few employees
at hand, then the workload will be overwhelming for the reliable staff to handle,
and as a result, the companyâs overall performance may suffer. An entrepreneur
should be aware of this employment challenge and create some sort of equilibrium
in the workforce by delegating tasks to competent employees and to avoid hiring
those who are not experienced.
A companyâs sales are one of the key constituents in the success of any business.
Lack of sales, on the other hand, is a warning that a business may be in jeopardy.
Businesses should always be aware of a companyâs patterns and trends in sales,
and be prepared to handle any fluctuations their company may present. They should
also be knowledgeable of their competitors, adjust prices of products and services
accordingly, and employ competent sales staff who can most benefit the business.
Lack of product diversity
Some businesses may only offer one product or service. This lack of variety can
be dangerous because if production ceases, the entire business may fail. It is important
for all companies to have some sort of diversification of goods and services to
A companyâs reputation is important for success. Issues involving customer
service, professional behavior exhibited by employees and managers, cleanliness
of a store, prices, quality of goods, follow-ups, etc., are issues that all affect
a companyâs overall standing and credibility. A company with a good reputation
is more successful and lucrative than one with a poor status.
Overexpansion occurs when business owners confuse their companyâs success
with how quickly they can expand their business. This leading cause for a companyâs
bankruptcy can be avoided if business owners concentrate more on their companyâs
slow and steady growth before considering any expansion. Once a solid customer base
is established and steady profitability is seen, business owners can then work on
developing and expanding their company.
A companyâs location is also critical for the success of a business. A good
location may facilitate a struggling business to ultimately thrive, whereas a company
situated in a poor location will be at a disadvantage. Some factors to consider
when establishing your companyâs location is where the targeted customers
live, the traffic, accessibility, and parking, the physical distance from competitors,
and the condition and safety of a building.
There are many issues that can undermine a businessâ potential for success.
Every business owner should be aware of these concerns and view these company challenges
as an opportunity to learn and grow as entrepreneurs. They should also address these
matters completely and do whatever is necessary for their business to succeed.