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Why Businesses Fail

Jul 12, 2008
There are many different reasons business fail and much of it is debatable but there are some common mistakes that are detrimental in business failure.

Some of the reason many business fail are due to the following reasons:

* Overexpansion.

Many companies over expand too soon. They look at the books and see 3 months of good sales and profit and think right let's get more staff. Then another 6 months down the line the profits have not followed suit which leaves you in a difficult situation. You need to stick with realistic goals and allow yourself to grow as needs dictate. And old saying 'don't not run before you can walk' is relevant. You need to look at the statistics and watch for trends. If sales and profits looks good now it's doesn't necessarily mean it will look good tomorrow.

* Overspending and lack of reserve funds.

Overspending can have detrimental affects. You should only spend on what is necessary. Be realistic, just because you have good cash flow at the minute doesn't mean you will have in the future. Ask yourself is purchasing this item really necessary, will it make a real difference or not. Look at all the costs of the business and if some are not necessary then drop them. Having money in the bank is important to carry you through market downtrends and seasonal slowness. You should always be prepared for fluctuations in business. You should always put money away in boom times to prepare for the slow times.

* Poor management

Poor management is one of the main reasons business fail. If you haven't got happy customers and happy stuff your business is almost curtain to fail. Poor customer service, poor accounting and overall employee incompetence can all combine to collapse a business. You need to ensure your employees realise the importance of good customer service. Establish protocols for how tasks should be accomplished and ensure they are carried out. Many companies these days have a relaxed attitude and don't place to much importance on carrying out basic good management practice. Having meetings regularly with all staff will help your business run smoothly. If no meetings take place then resentment can set in. Everyone needs to air their opinions and explain how their job could be done more efficiently.

* Poorly treated Staff

Labour is the biggest expense for most small business so it makes sense to ensure your company employs the right amount of people and treat them correctly. Companies that invest highly in their staff by offering training and advancement will find it easier to keep their staff. Ensure you pay your staff every month on time as not to do so would be breaching your contract with them. Invest in your staff; they are your biggest asset. If they feel they cannot advance in your business they will not stay long. Listening to your staff is important. If employees are leaving you need to be asking why. Treat your staff how you would expect to be treated and you will gain respect from them and get the best of out them.

* Poor or no business plan

Having a good business plan is your key to success. A well-thought-out business plan forces you to think about the future and the challenges you'll face. As long as your forecasts are realistic and you have done plenty of market research you should be ok. Ensure your plan has a budget and stick to it.

* Dishonesty and Greed

Being dishonest will catch up with you eventually. Remember your ethics, try to treat your customers and staff as you would be expected to be treated. Don't charge the earth for customers just because they look like they can afford it, this is exploitation and will come back and bite you on the bum. Greed is another aspect that kills businesses. You feel like you're on a roll and feel invincible so you over charge people and promise them the earth. When you can't deliver you will lose customers and eventually your reputation. Always be honest and ethical and you will reap the rewards.

There are other reasons business fail and I have only touched base on some. As long as you work hard, do plenty of research, treat staff and customers with respect, keep a tight control over your accounts and leave your ego at home you should be alright. Oh and most importantly use common sense. You would be surprised at how many business owners are egotistic, arrogant with no personnel skills and very little common sense, these business are bound to fail eventually.
About the Author
Carolyn is the webmaster of Angel Startups, specialists startup funding, business grants and Business Advice.
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