Five Reasons Businesses Fail

You’re probably wondering why there are such high failure rates amongst small businesses. It’s estimated that nine out of ten startups fail. Having an insight into some of the most common reasons given by founder CEOs of failed businesses might provide you with examples of what not to do in order to achieve long term success. On the surface, the primary reason why a business fails is because they simply run out of cash. However, the underlying answer is quite simple; the reason why most small businesses fail lies within the entrepreneurs themselves. Below are the most common reasons why entrepreneurs run their small business into the ground.


1. Not Having Enough Capital (Cash).
Entrepreneurs are generally optimistic; after all they started with a business idea in hopes of building a successful business. However, one of the biggest pitfalls is that they do not have enough cash to sustain their business when things do not go as smoothly as planned. In addition, there may be many unforeseen or uncalculated costs that will cause your business to hemorrhage more cash than expected.

2. Not Having Enough Experience.
Entrepreneurs may have a fabulous business idea but lack the experience to properly execute it. If the business owner does not quickly learn, the lack of experience will be the cause of their downfall. Since an entrepreneur is new to their business they may have a lack of focus, vision, standards, and planning. This lack of experience can translate into poor management skills resulting in inadequately trained employees and problems working with them.

3. Not Knowing Their Business Finances.
Entrepreneurs who do not have a clear understanding of their business finances will have a difficult time knowing if they have a profitable business model. It is impossible to be in control of your business if you do not know what is going on. There are a number of issues that arise if you cannot tell whether you are paying too much for rent, labor, and materials. Entrepreneurs without an adequate knowledge of their business finances will encounter issues with their business cash flow.

4. Not Growing at a Steady Rate.
When a business is successful, a small business owner may want to immediately capitalize on their success. They may be encouraged to diverse or expand into uncharted territories but the sudden expansion may prove to be detrimental to their business. A business expansion can move the business into markets that are not as profitable and take away from the original business. In addition, an expansion will drain the entrepreneur’s time and resources which might affect quality.

5. Not Growing in a Slow Market.
Entrepreneurs may have a difficult time growing their small business if they are in an industry with heavy competition. If their business model is just mediocre and does not differentiate from its competitors, it will have a hard time making up for slow sales. Not being able to grow could also be a matter of a declining market. Often times, a change in technology can make some industries obsolete.
While there could also be several other reasons to why your small business is failing, being able to identify the problem is the first step in being able to turn your business around. Don’t be intimidated about the high percentage of small business failures; instead, make yourself knowledgeable about the challenges your small business will face on the path ahead and take proper advice; our specialist licensed insolvency practitioners offer a free initial consultation during which they will provide an unbiased assessment of the business financial situation, explore all available options to help directors navigate a cost-effective and lawful way out of their financial difficulties.

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