Businesses Fail: Knowing 20 Reasons Why Before Your Business Collapse

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The worst part about a failing business is that the entrepreneur is unaware of it happening until it’s often too late. It makes sense because if the entrepreneur actually understood what he was doing wrong, he might have managed to save the business. Some entrepreneurs reside in a land of denial while others don’t know about their mistakes.

“It is not the plan that is important, it is the preparation. ” Dr. Graeme Edwards

It is an impressive number. The unhappy reality is that just about 50% of them survive. What is worse is that just about one-third survive 10 years or longer. It’s a continuous struggle. There are many moving parts. Anyone of them could put you out of business.

Businesses fail for many reasons. This list includes some of the most common reasons:
1 — Insufficient planning — Businesses fail because of the lack of short-term and long-term planning. Your plan should include wherever your business will be in the upcoming few weeks to the next few decades. Include measurable goals and results. The right strategy includes specific to-do lists with dates and deadlines. Failure to plan will damage your business.

2 — Management failure — Businesses fail due to poor leadership. The direction must have the ability to earn the ideal decisions most of the time. From financial management to employee management, leadership failures will trickle down to every aspect of your business. The most prosperous entrepreneurs learn, research, and reach out to mentors to improve their leadership skills.

3 — No distinction — it isn’t sufficient to really have a great item. You also need to come up with an exceptional value proposition, without you may get lost among the contest. It is important that you know what your competitors do better than you. If fail to differentiate, you will neglect to build a brand.

4 — Ignoring customer wants — Each business will tell you that the client is #1, but just a small percentage acts that way. Keep an eye on the trending worth of your customers. Learn if they still love your merchandise. Do they need new features? What exactly are they saying? Are you listening? I once talked to the CEO of a training company who advised me they don’t respond to negative reviews since they’re insignificant. What?

5 — Inability to understand from failure — We all recognize that failure is generally bad, yet it is rare that businesses learn from collapse. Often entrepreneurs are unaware of their mistakes. Learning from failures is difficult.

6 — Poor management — Examples of bad direction are an inability to listen, micro-managing — AKA lack of confidence, functioning without standard or systems, poor communication, and lack of feedback.

7 — Lack of funds — It can result in the inability to attract investors. The deficiency of capital is an alarming sign. It shows that a business may not have the ability to pay its invoices, loan, and other financial obligations. Lack of capital makes it hard to grow the business and it might jeopardize day-to-day operations.

8 — Premature scaling — Scaling is a good thing if it is done at the right moment. To put it simply, if you scale your business prematurely, you will ruin it. For instance, you might be hiring to a lot of people too fast, or spend too much on advertising. Do not scale your business unless you are prepared. Pets.com failed because it attempted to grow too fast. Even the great brand equity they have built couldn’t save them. In a few months, their stock went from $11 to $0.19.

As per a study of about 3200 high growth net startups performed by Startup Genome, about 70 percent of their startups in their dataset climbed prematurely.

If your business relies on foot traffic, then location is a tactical requirement. A bad location might make your client acquisition costs too large.

10 — Insufficient gain — Revenue is not the same as profit. As an entrepreneur, you have to keep your eyes profitability in any way times. Gain allows for expansion. According to Small Business Trends, only 40% of small businesses are rewarding, 30% break and 30 percent are losing cash.

11 — Insufficient stock management — Too small inventory will hurt your sales. Too much stock will hurt your profitability.

12 — Poor financial management — Utilize professional accounting software like Freshbooks. Keep records of all financial documents and constantly make decisions based on the information you get from real data. Know where you stand all the time. If amounts are not your thing, hire a financial professional to describe and instruct you to know, at least the fundamentals.

13 — Lack of focus — Without attention, your business will shed it on a competitive advantage. It is not possible to have a broad plan on a startup budget. Why is startups’ triumph is their ability to quickly pivot, and the lack of focus leads to the inability to produce the necessary adjustments?

14 — Personal use of business funds — Your own business isn’t your private bank account.

Before you enter new markets make sure you optimize your existing marketplace.

16 — Macroeconomic factors — Entrepreneurs can’t restrain macroeconomic factors. Common macroeconomic factors are business cycles, recessions, wars, natural disasters, government debt, inflation, and business cycles. Your business can still triumph in poor times. Hyatt, Burger King, FedEx, Microsoft, CNN, MTV, Trader Joe’s, GE, HP are just a few instances of wildly successful businesses that began during a tough market.

17 — No succession plan — Future leaders must be identified in advance. With no effective succession plan, your business is unprepared to fill openings in created by retirements, unexpected departures, or even death.

18 — Wrong spouse — It is no secret it is easier to succeed in business with the right partners. The wrong business partner will, in the very least hurt, or, at worst, ruin your business.

If you are serious about making it entrepreneurs, focus on the following:

19 — Create a strategy — It all begins with planning. The biggest mistake many entrepreneurs create as they start their ventures is that they don’t sit down and write a business plan. Do not treat it like a business school project. Leave writing a 50,000-word business plan to amateurs. Let them waste their time. You are able to certainly do a great business plan in one or two pages. There are a number of great books on business plans such as”The Keys to Writing a Successful Business Plan” and”Successful Business Strategy”.

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