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Common Reasons Why Businesses Fail

Common reasons why businesses fail

For business owners, one of the most common and predominant fears is that their business will become a failure. Not only is business failure a financial issue, but many owners of failed businesses find the process embarrassing and emotional. Starting up a business takes a lot of courage, resources and time, so a failed business can really hit hard.

Unfortunately, failed businesses are actually quite common. In the UK, 4 in 10 new businesses won’t make it to their fifth year. So how can you avoid becoming a part of this statistic? Knowing about some of the common reasons why businesses fail is a good start.

In this article, we will look at some of the most common reasons why businesses fail and tips for avoiding failure.

Poor cash flow

Poor cash flow management can very quickly become the reason that your business fails, even if your business is profitable overall. We’ve said it before, and we’ll say it again, “Cash is King!”

Some of the symptoms of a poor cash flow structure look like the inefficient management of debtors, too much stock at one time, and late invoicing. If you take out the wrong type of financing for your business in the initial start-up stages, you can also expect to deal with cash flow problems.

You need to ensure that you have enough growth capital so that your business has enough resources to grow and reach its full potential instead of fizzling out.

Stay on top of your cash flow, and prioritise this aspect of your business if you want to avoid failure.

Bad leadership

Bad leadership can easily cause a successful business to topple over. Unfortunately, not everyone is a good leader. A good leader will be able to recognise the skills that they lack and have the sense to outsource this type of work to professionals.

A good leader will also always encourage their team to do better and work at the very best of their capabilities. They will lead by example and put in the hard work when necessary. They will be someone that the team can look up to and respect.

On the other hand, a bad leader often creates a toxic work environment and inefficient teams. In many cases, employees may quit their jobs on account of a bad or unpleasant leader.

Does your business have the right leadership in place? Understand the importance of good leadership in the workplace and how choosing which people to put in positions of power can really make or break your business.

Depending on a few customers

When you have a few big, repeat customers every month, you can feel a false sense of security in the future success of your business. Stop and think for a moment of what would happen if you were suddenly to lose one or all of your big customers? Your business probably wouldn’t have the time to gain new customers before it went under.

That is why it is very important to continuously look to appeal to new customers. Never become complacent. You should constantly promote your business offering on the right channels so that potential customers are aware of your business.

Increase your customer base by diversifying your products and what your business offers!

If you do depend heavily on a few big customers, you may want to put contracts in place to ensure that they will give a reasonable notice period if they plan to stop buying your products or using your services.

Lack of strategy and foresight

As a business owner, you always need to be looking towards the future and have plans and strategies in place. Long-term plans are an effective way to keep your business on track and have some sort of idea of what to expect in the future of your business. Creating realistic plans requires proper research ‒ something some business owners simply do not prioritise or make time for.

If you want your business to succeed, you should know exactly where you’re going. Of course, it is impossible to tell the future, and that is why you should have contingency plans for a variety of different outcomes.

Having a proper business plan right from the beginning can help alleviate some of the risks involved with running a business.

Losing financial control

No matter what type of industry you’re in, or the size of your business, you need to maintain financial control. The way to have financial control is to have an in-depth understanding of your finances at any given time. This may mean hiring a professional accountant to stay on top of things and keep your financial records very organised and detailed, which will also come in handy when you have to pay your taxes.

Having a clear idea of your finances also helps you identify any risks and opportunities and act on them accordingly.

Losing financial control can happen quickly and have somewhat of a landslide effect. If you do not have control of what is going on, your business can very quickly slip into demise.

Not researching the market enough

You may have a business idea that seems great on the surface, but if you do not do enough market and industry research before starting up your business, your business could be doomed to fail.

Be sure to do sufficient market research into the industry, your target market, as well as your potential competitors. In this case, knowledge truly is power. Remember that there is no real point in researching the market without acting on the information that you receive.

Make adjustments to your business plan and goals based on the information that you receive via market research.

Bad location, not enough online presence

If you plan to open a brick-and-mortar shop or even have business offices, you want to consider your location extremely carefully. Yes, prime locations can have very high rentals, but you may get zero foot traffic if you situate yourself in a quiet or dangerous area. Your physical location can really make or break your business.

The same goes for online services and products. You want to position yourself strategically online. This means being present on the right social media platforms and having a good marketing strategy in place. You want to position your business where your potential customers can easily come into contact with you and stumble upon your business. To stay current, trending and noticeable in the sea of online businesses, you may need to hire a social media marketing specialist.

Not being flexible

Many owners of failed businesses look back on their business and realise that they were far too rigid, which may have been the cause of their business failing.

In the business world, things are ever-changing, and you need to adapt if you want to survive! Just take the COVID-19 pandemic as an example. Businesses that were flexible found ways to adapt to the lockdowns and restrictions, whereas rigid business owners found themselves going bankrupt. Of course, there are certain cases in which nothing can be done to save a business. But at the end of the day, being adaptive and flexible is always an advantage to a business owner that needs to keep up with the ever-shifting times we live in.

No performance data

You may think that your business is too small to benefit from performance data and analytics, but in all honesty, this tool would really help propel your business forward, no matter the size. By looking at performance data, you can easily see where things may be going wrong in your business.

By having a clear idea about what may be going wrong, you have the opportunity to fix areas of your business before they spiral out of control. You’ll be able to minimise risks, help improve specific employees’ performance levels, and cut back on unnecessary costs.

There are many programs and professionals that can help you access detailed analytics about your business.

Not enough security or backup

Have you ever lost all of the documents on your personal laptop due to a system crash? We all know how annoying and inconvenient this can be. In the case of the data of an entire business, losing it could honestly be devastating and may even be the beginning of the end. Without proper documents, you may battle to run the business as usual, and your company may start slipping behind on even the most important tasks. This is why you need to invest in a proper data security system and backup.

Lastly, obtaining insurance is another thing that you should think of in this regard. Suppose your premises experiences a disaster such as a fire or something of the like. If you are not covered by insurance, your business could really lose everything! As a business owner, you should always look for ways to minimise risks as much as possible if you want to decrease all possibilities of your business failing.



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