There are a number of different reasons why businesses fail. “Money” is usually the first reason that pops into everybody’s mind. And while it does play a major role in a failing business, there are many other contributing factors.
Here, we look at six possible reasons why businesses fail.
1. Bad management
What exactly does this mean? Well, often individuals starting up in business aren’t experienced in handling the multiple aspects of a business, like financial management, employee relations and advertising. If this inefficient management carries on for too long, it can cost you almost all of your resources to try and fix the problem.
In order to beat this, get an experienced manager on board who will be able to guide you each step of the way; someone who can give sound advice. They should preferably have what you lack in order to maintain a balance.
Knowledge is power. Enlighten yourself through business and finance courses. What have you got to lose?
2. Not enough cash
Many believe that they will be making profits from the very beginning, when in fact this might not be the case. It’s very possible that you will spend most of your capital quite early in the business. You may then discover that you don’t have enough money to continue your business venture successfully.
Therefore, acknowledge every single expense and save enough money according to these costs.
In the place of focusing on short term profits, you should be focusing on building long term value. By doing this, you will focus on the lifetime value of a customer and the profits should then manage to look after themselves.
3. Uncontrolled growth
It’s important that you monitor your growth. For a business owner, it can be very tempting to expand and buy more equipment when the business shows significant growth and profits. However, keep your wits about you.
Don’t spend all your profits at once. Instead, stick to the plan you’ve laid out in order for you to grow your business without too many unnecessary complications.
4. No network
A lot of time needs to go into nurturing your professional and personal connections. Cultivate the market in order to develop these connections. You will be quite surprised at how many of your first customers will come from your personal connections. Without a network, your business will struggle to survive.
5. Doing it for the wrong reasons
It’s very common to strive towards excellence – and essentially towards a life of wealth. However, if making money and getting rich is your only aim in business, you’re going to have to re-evaluate some of your goals. Making money is definitely an important business goal, but don’t let it be your sole reason for starting up.
Base your business around something that you are passionate about. This way, you will automatically know as much as you can about your product or service. You will also deliver better value to your customers and this will place a high value on what you do.
6.Lack of a business plan or bad feedback
A good business plan is essential for setting goals and mapping out a plan to achieve these goals. It’s essential for growth and possible investment in your company.
Family and friends are normally the first people entrepreneurs turn to for advice. No one wants to tell a friend or family member that their ideas are bad.
As a new business, you should be seeking advice from professionals and people in the industry or entrepreneurs who have “been there, done that”. They will give you hands-on advice and great tips and recommendations on how to go about your start up.
Just remember, starting a business is one thing, but sustaining a business is another. This is why knowing the possible reasons for failure beforehand are so important. It gives you the opportunity to succeed and prepare yourself for the journey of a lifetime.
1st Contact Accounting gives forward-thinking individuals the tools to steer their careers and financial affairs forward. For assistance regarding your business, you can visit the website.
