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Small Business
Resource Center > Article
The Top 10 Reasons Why Businesses Fail
21 Oct 10 Posted by: Kathleen C Lanza
in Start-Up
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According to the U.S. Small Business Administration, your chances of making it in business for five years or more are roughly 50/50.  Okay, so the odds could be better, but they could be a whole lot worse too.  As is true with so many things in life, much of how you perceive your odds depends on your attitude.

If your attitude going into any new business venture is that failure is not an option, then maybe it just won’t be.  One thing IS for certain ― having a great attitude won’t mean anything at all unless you take the necessary action to support it.  And taking the correct action depends on having the knowledge you need to do what you should or should not be doing at exactly the right time.  Whether it’s at start-up or even if you’re three years into growing the most promising business there is, no one DOESN’T fail by accident!

Simple as it sounds, the first step on your road to deciding whether or not to start your own business ― whether it’s in the form of a home-based or other small business, franchise, licensee opportunity or distributorship ― is to build your knowledge about the potential pitfalls right up front.  Of course, that kind of homework takes a lot more time and certainly space than we have here, but that doesn’t mean we can’t get you thinking.

To that end, here’s a broad-brush look at the top-ten reasons why businesses fail:

1)      Inability to Manage Loss of Revenue This is perhaps the biggest contributing factor to the failure of businesses today, due largely to the current economic downturn.  However, a good number of businesses fail for this reason even when times are good.  While it’s true that recent hard times have caught many businesses off guard, the ones that are especially at risk for failure are those that have no back-up plan for how to survive when times are tight.  Successful businesses are constantly scrutinizing their operating expenses, receivables and inventory, as well as the prices they’re charging for the products and services they provide to figure out how to cut costs and keep the cash flowing.  In essence, they are always one step ahead in planning for that rainy day ― okay, sometimes it’s a tsunami!  Of course, all the planning in the world won’t mitigate every business casualty out there, but staying one step ahead of the economy’s inevitable highs and lows sure helps.

2)      Not Enough “Know-How” You may know how to build a widget better than anyone else, hands down, but having the technical expertise to run your business is only half the battle.  Why?  Because running your own business requires tremendous acumen in doing just that ― running a business.  And believe us when we say that running things is much more complicated than it might seem.  Owning your own business requires a perfect balance of ownership with actual management skills in everything from human resources and accounting to marketing and financial planning…and everything in between, which is why having an experienced mentor to advise and counsel you is so important.  And, as a general rule, when it comes to choosing just the right mentor(s), it shouldn’t be a friend or family member!  Rarely are these individuals the successful, experienced entrepreneurs you need and can count on to give you objective feedback.

3)      Inadequate Business Planning ― Countless books and articles have been written on how to write a sound business plan.  Some plans are complex, while others are relatively simple and straightforward.  All of them are entirely necessary, especially if you need to secure start-up funding for your new home-based or other small business.  Amazingly, many small business owners who have the resources they need to get going just jump right in with no plan whatsoever.  Guess what?  Statistically, they don’t do very well.  In addition, too many entrepreneurs get into business for reasons of ego as opposed to identifying a legitimate need in the marketplace and then filling it.  Or, they don’t do their homework and then make a true novice misstep, like picking the wrong location or trying to compete with an already well-established competitor without a clear and distinctive marketing plan.  And guess what?  Those businesses oftentimes don’t last very long.  Bottom line…any start-up, no matter how big or small, needs a sound business plan from the outset if it has any chance of succeeding over the long-term.

4)      The Two Cs: Capital and Credit ― Securing start-up capital for your new business is just the tip of the iceberg.  Far too many anxious entrepreneurs think that if they have the money they need to just get things going, that’s plenty.  Actually, that’s just plain crazy.  Even the businesses with the best plans for success take at least three to six months to make any kind of profit…and that’s assuming everything goes according to plan.  To be safe, you need to have money over and above start-up to sustain you throughout the first year.  Also, be aware that overspending in the first year can be a real problem, especially if you’ve got big dreams, good credit and even remotely inflated expectations.  The key is to not spend money you don’t have or that you are not absolutely sure you can’t get back.  This holds true when it comes to fixed assets ― computers, phones, machinery, equipment ― as well as liquid assets, such as inventory.

5)      Marketing Failures ― This one is simple and really straightforward…you must have a really strong and well-conceived marketing plan.  No “seat-of-your-pants” marketing will do if you want to have a real shot at succeeding in any business, especially in the first few years when you must make a name for yourself and establish a loyal client base.

6)      It’s All About the Where! ― The old adage that location is everything really holds true in business.  Depending on your product or service, foot traffic may be critical to your doing well.  If you’re off the beaten path, that’s not good.  Of course, a lack of traffic can be made up for with a good, solid marketing plan, which goes back to our last point.  If your products and services are being marketed online, especially in whole or even in part, then hiring a company that does SEO (Search Engine Optimization) work is a necessity.  Remember, with the advent of the internet, the “where” of your business venture is not just real, it’s also somewhat virtual.

7)      It’s Not Personal, It’s Business ― Yes, it’s everyone’s favorite line when they have to do something they don’t like in business, but it doesn’t just apply when you’re trying to justify a hard-to-make decision.  The fact is that way too many self-employed or other small-business owners go under every year for the reason that they can’t separate their business expenditures from their personal finances.  You’d think it’d be common sense to NOT use that latest check from a client to pay your car payment, and you may think you’ll earn it back in no time and just replenish the stores.  Trust us when we say it rarely works out that way.  At the end of the day, any smart business owner does everything on the up and up at all times and ensures that any business-related funds stay where they belong ― in the business.

8)      Letting the Competition Get Ahead ― Of course, competition will kill you every time, but only if you let it.  It’s amazing how many businesses find their groove and then figure that things will always stay the same, so much so that they don’t have to change with the times and, more importantly, the competition.  Fact is, when it comes to competition, the only thing that’s certain is that there will be change. The truly savvy and successful entrepreneur is constantly scoping things out in an effort to always stay one step ahead.

9)      Growing Too Fast ― Growth sounds like a good thing and it is!  Who doesn’t want their business to grow and grow and grow, right?  As long as growth is anticipated and planned for, that means it can be managed and that’s good.  However, overexpansion usually connotes a lack of preparation, and that can be deadly.  Keep in mind that, especially in the first few years, slow and steady is what will oftentimes win the race when it comes to the long haul, which again circles back to the point about first-year funds ― if you’ve got what it takes to sustain you, you won’t be in such a hurry that you risk losing it all by moving too quickly.

10)   Failure to Employ New Media ― The importance of developing and maintaining an online presence in business is becoming more and more critical with each passing year.  Having a business website to drive traffic and develop and maintain customer relationships is pretty much a necessity today.  In addition, SEM/SEO (Search Engine Marketing/Search Engine Optimization) are terms and specialties that any smart business owner needs to know and value.  Add to all this the very real and growing impact of what’s being termed “social media,” and you have some of the most powerful elements of any contemporary marketing plan.  Today, businesses of all sizes and kinds choose NOT to employ at least one of these new media options at their own peril.  So beware!

Live On Your Own Terms
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