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Starting Your Business

Twelve Reasons Why Businesses May Fail

There are many things you can do to greatly reduce your chances for failure as you begin to build your business. Avoiding the following things on our list may not guarantee success, but by paying attention to these issues, you may circumvent many of the common reasons a business fails.

1. Absence of a long-term vision for your business: Without such a vision, it is easy to stray off-course, become bogged down by the daily details, and forget where you are going. In the past, most businesses did a five and ten year plan but in today’s environment a one to three year plan is more practical. However, you should never quit thinking about the future of your business and how you intend to shape it to fit your long term needs.

2. Procrastination: When you own a small business, you will find that tasks and paperwork pile up like snowdrifts on your desk. Putting them off is like piling up debt; eventually, they could overwhelm you. Set aside regularly scheduled time each week to tackle these tasks and paperwork. If necessary make an appointment on your calendar but follow through follow.

3. Ignoring the competition: If you choose to ignore your competition, you may not recognize new products available to you, be aware of accurate pricing for your own product, or you may become overconfident in your ability to determine customer desires.

4. Sloppy or ineffective marketing strategy: It’s crucial that you have a plan and execute it well. Marketing keeps your products selling and money flowing into your business. (see Developing a marketing plan)

5. Ignoring customer needs: Once you attract customers to your business, you’ll have to work hard to keep them — or they’ll find someone who will provide for their needs as well or better than you do.

6. Incompetent employees: These individuals can cause your company to lose customers and profits. A good philosophy to follow is to hire for attitude and train for skill.

7. Lack of business skills: You may be great at making hats or painting houses or fixing computers, but that’s not enough. Develop sound management systems that aid you as you run your business, so that you can concentrate on growing your business.

8. Poor location: Try to find the most appropriate site for your business, for example, a retail site on a high-traffic street or an office in a well-known building.  If you’re developing an e-commerce business online, make sure your Web site is easy to find. Choose a name that is easy to spell and remember, or find ways to link to related businesses that will help drive traffic to your site.

9. Inadequate capital: Many businesses start with too little money. Make sure you consider ALL of the costs to cover the start-up phase and, depending on the type of business, funds for a minimum of six months to one year So many businesses such as manufacturing will require more than one year of funding to reach a stabilized cash flow.

10.  Cash-flow problems: You need to know how to track the money coming into and out of your business. Even a profitable venture will founder if it runs short of cash. (See article Protecting Your Cash Flow)

11. A closed mind: Everyone goes into business with some preconceptions. Don’t be surprised if you find that many of yours are wrong. Look for mentors who can give you advice, and run your ideas by them before you make important financial commitments. Don’t just create a job for yourself, think about how to create a better way of doing something that will last long after you do.

12. Inadequate planning and standards for performance: Start with realistic but precise goals for your firm, including deadlines. Then write down the steps you can take to meet those goals, set deadlines for completing those steps, and document the level of performance you expect in achieving those goals. Communicate the goals to your employees, and encourage them to buy into your goals so that they can help you to accomplish your goals. Their success depends upon the success of the overall organization, and you need to help them realize that.

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