Reasons Why Businesses Fail


According to research done by the Small Business Administration, only half of the small businesses are able to make it past their second year in operation. There is a myriad of factors that could lead to the failure of a business. Most businesses have a 50/50 chance of survival but there are some distinctive features that will make some standout. It is important that you’re aware of the pitfalls before starting a business to avoid making the same mistakes. Here are some of the reasons why a lot of businesses fail.

Failure to Have a Business Plan

You can’t run a successful business without a business plan in place. Even if you intend to be a smoke shop distributor in Houston, you’ll still need to do the planning. You first have to figure out how you’ll make money and the seed capital to start the business. Everything should be noted down in detail so that there is a blueprint to follow in case you’re not sure of the next steps to take.

Lack of a Unique Value Proposition

You could have a product to sell but you’re still finding it hard to stay afloat. There is a high chance that you’re taking a mediocre approach to the business or that there is no unique value proposition with the solution that you’re trying to provide. In order to avoid such a failure, you’ll need to identify what sets your business apart from competitors. There will always be competition in every vertical but your success will depend on what makes the business stand out. When you develop a custom approach, you not only get to be ahead of the curve but will also be building a brand in the process.

Not Aware of the Needs of the Customer

You’ll be setting yourself up for failure if you’re not aware or lose touch with the needs of your customers. There are so many ways you can learn about the needs of the customers. One of the most effective ways is to be responsive to feedback. You should also be open to objective criticism.  Those businesses that succeed will keep an eye on consumer trends. There are CRM tools that can help streamline the processes.

Unprofitable Model

There are businesses that are bound for failure even before they become operational. You might be passionate about an idea but for it to make business sense, it will need to be viable in the first place. For your business to be profitable, you’ll have to develop a business plan. Having a sound business plan will ensure that is clear from the onset of how you’re going to make money. You get to solve problems as they occur.

Poor Financial Management

This is one of the main reasons why a lot of businesses fail. Handling growth could prove challenging as there will be a lot of things happening too fast and at the same time. It is imperative that you’re getting in touch with an accountant as soon as you start your business. You need to be accountable to the last dime if your business is to be profitable. There is also a high chance that the business could fail if there is no contingency fund in place to cushion it during the difficult moments. You might have the best business idea in the world but still fail because of not managing cash flow and dealing with financial issues the proper way. You can avoid such a predicament by using a professional accountant.

Rapid Growth

As we’ve already mentioned, not a lot of businesses are well-equipped to handle rapid growth. On paper, everyone would want to have a fast-growing business but it could end up being a double-edged sword. To avoid having issues with rapid growth, there needs to be strategic planning with the day-to-day operations of the business. Before you can think about adding a new product line, make sure there is adequate infrastructure in place and you have the capacity to fulfill in case there is an increase in demand.

Poor Management

Managing a successful business will involve a couple of variables. There is planning, organizing, controlling, communication, and directing. As a business owner that is just starting out, you might be forced to wear several hats. The rule of thumb is that you’re aware of your position at any given time. You don’t want to grow beyond your skills or resource levels. When it reaches such a point, it will be a sign that you need to hire professionals to help with managing the business.


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