Why Businesses Fail

The U.S. Small Business Administration states that, of all startups, 50% of businesses fail in the first year and 95% fail within 5 years.

Top 10 Reasons Why Businesses Fail:

1. Missing the Boat - It is of paramount importance to realize that your preferences, likes, and dislikes may not be universal; that your prospective clients may not “scream” for your product or services. It is essential that a realistic appraisal of market needs and wants be recognized and analyzed in order to present a product that is truly wanted in the marketplace. People, as a rule, are not looking for ways to rid themselves of their money unless they are convinced that the product or service that is being offered is truly worth the price charges.
   
   
• Don't convince yourself that your preferences march “in lock step” with those of the marketplace.
• It is essential that you constantly monitor the pulse of the buying public to assure yourself that what you are offering for sale is truly that which is wanted and/or needed by the buying public; i.e., not so much price as need.
• Basically, insufficient product need is the one major reason why business startups fail in the short term.
  
  
2. Money - An extremely important determinant of startup (as well as on-going) business failure is lack of, or insufficient, capitalization to maintain your product's or service's presence in the marketplace. Until your product achieves recognition with sufficient accompanying sales to support your staff, location, business expenses including advertising costs, and applicable debt service, you must have financial resources available to “stay afloat”. Lending agencies must see a professionally written business plan to convince them to provide you with these financial resources.
   
   
3. Management - It is essential that management skills be present to successfully launch a successful business venture. Many times depending only upon your technical capabilities to produce your product or service is not sufficient to create and maintain growth of a fledgling company. The people who work with you are as much a part of your business and its future as you. If they are managed in a manner which shows disregard for their needs, your business is in trouble from the onset. Management of vendor invoices and attention to prompt bill paying as well as timely customer invoicing all play an important part in maintaining a successful business. Without them your business has only a limited chance of success.
   
   
4. Accounting - One cannot overstate the importance of accurate record keeping, cash flow analysis, and business projections in maintaining the health of your venture. Admittedly, these are not the exciting parts of running a business, but without them, it is assuredly guaranteed to face difficulties at the least and failure at most. Perhaps the least glamorous aspect of your business effort is its bookkeeping, but, without a strong record-keeping system as support, your awareness of where your business is headed is in jeopardy. A corollary to this is not maintaining strict oversight over personal vs. business funds. This is detrimental to business survival.
   
   
5. Customer Service - Simply put, without consumers, businesses fail; and the quickest way to alienate and eventually eliminate your customer base is with poor service. Inattention to your customers' needs or ongoing staff discourtesies can be a recipe for business failure.
   
   
6. Competition - Not being aware of and monitoring your competitors' products and pricing can put your new company on a downhill slide, especially if your product or service can be purchased more inexpensively elsewhere.
   
   
7. Identity Crisis - Believe it or not, your company name may contribute to startup failure if it contains a negative connotation of your product or service.
   
   • “Deep 6” is hardly an appropriate name for a company selling cemetery plots or memorials.
   • “Short Circuit Electrical Service”, “Bugs-a-Lot Pest Control”, “Leaks Plumbing Supply” might not be preferred business name choices.

In addition, the name you have chosen for your company might be registered by an existing firm, forcing you to cease operations before you begin. This is yet another reason why your business may fail.

8. Location - If your business requires exposure to the buying public, and you locate your storefront in an out-of-the-way location, this can hasten your company's demise or, at the very least, considerably retard its growth.
   
   
9. Poor Planning - Many businesses fail out of the gate because they don't prepare for emergencies. It is more than simply advice that warrants inclusion of sufficient business insurance to cover inventory losses and customer personal and property liability, and severe initial business downturns that can impact the survival of your new enterprise.
   
   
10. Neglecting Necessities - Finally, many businesses fail because the owner tries to “fly by the seat of his pants”; professionalism and outside expert advice is not considered. Today's business environment contains many legal and accounting pitfalls including financial and tax issues. Money spent in professional consulting in these areas is an investment that produces favorable results for the life of the enterprise. Deliberately foregoing this investment can be fatal.

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