25 Top Reasons Why Businesses Fail

Starting a business, whether it be from home, or in an office somewhere, may sound like the perfect
solution to your working blues, but unless youre committed to making it work, you can find yourself on
the losing end real quick.

Businesses fail for many reasons. It is important to understand those reasons so that you can decide
whether or not you are up to the challenge. Those reasons include:

1. FearWhether it is the fear of success or the fear of failure, fear of stepping out of ones comfort zone
to try something new, or the fear of trial and error. Fear can freeze a person dead in his or her tracks.

2. Failure to plan.

3. Lack of funding.

4. Procrastination

5. Excuses. Especially making an excuse for any and everything that causes you to stumble.

6. Doing busy work. Keeping busy doing unimportant tasks.

7. Inability to delegate tasks. Sometimes delegation saves your business. If you have a weakness, hire
someone who could turn that weakness into a strength. Use others to complete simple time consuming
tasks so that you can do other things.

8. Failure to Research.

9. Failure to Market.

10. An inconsistent advertising campaign. It is better to have a ton of small ads on a regular basis than one
large ad on a monthly or yearly basis.

11. Your pricing is too low, thus resulting in a negative cash flow.

12. Bad accounting practices.

13. Choosing quantity over quality. Cutting corners is bad business sense.

14. Dishonesty.

15. Not fixing mistakes.

16. Not completing tasks in a timely manner.

17. Inability to follow-up. You should always follow-up by email, snail mail, or phone.

18. Not listening to client or customer. Talking too much.

19. Spending too little. It takes money to make money.

20. Spending too much. Purchasing items when you dont need them, upgrading when the older version
will do, letting suppliers talk you into things you cannot afford, and not budgeting.

21. Being unprepared for fluctuations in business. Boom times when demands are high as well as slow
times when you are struggling to get by. (Put money away during boom times to prepare for slow times.)

22. Lack of diversification. If you only offer one product or service, losing it can destroy your business.

23. Reputation. While a good reputation will gain you tons of business, a bad reputation could close your
business.

24. Cockiness. There is nothing wrong with feeling great about your products, services, or
accomplishments. Just dont let pride and arrogance destroy your customer relations.

25. Discouragement. Giving in to your feelings of discouragement, when things do not work out the way
you planned or succeed as fast as you thought. Also allowing others to feed on any discouragement you
may already feel.











Why Do Many Small Businesses Fail?
According to the Small Business Administration, two-thirds of new businesses survive for at
least two years, and only 44 percent survive at least four years. Why some businesses fail
and why some succeed is a matter of debate, although there are some common mistakes
that can sink a business in no time.
Give your new business venture a fighting chance by taking care to avoid these fatal errors:
Overexpansion. Wanting to be the first to market with a new product, taking on
added overhead, and the need to demonstrate revenue growth to anxious investors can
all induce businesses to overextend themselves financially. Rather than head down this
path, start with realistic goals and allow yourself to grow as needs dictate. Let your
revenue, not pie-in-the-sky projections, dictate your hiring practices.
Poor capital structure. Look at the businesses that fail and you'll find that many of
them took on too much debt. Learn to pay strict attention to your finances and keep
careful records of all money coming in and going out. Even if everything's coming up
roses today, trouble can still be right around the corner.
Overspending. Many startups spend their seed money before cash has begun to
flow in at a positive rate. This often happens because of misconception about how
business operates. If you're just starting out in business, seek out seasoned veterans you
can bounce your ideas off of prior to making big financial commitments.
Lack of reserve funds. Failing to prepare for volatile markets and uncontrollable
costs like energy-rate increases, materials, labor, natural disasters, and the like is another
top reason many businesses fail. Make sure you protect your investment and keep
enough reserve cash to carry you through market downtrends and seasonal slowness.
Bad business location. Don't let a cheap lease tempt you into opening your doors
in the wrong neighborhood if your gut is telling you it's not right. Key factors to consider
include competition (how many other similar businesses are located nearby?) and
accessibility (is the area well served by freeways, public transportation, and foot traffic?).
Poor execution and internal controls. Poor customer service, accounting
controls, and overall employee incompetence can all combine to bring down the ship.
Make sure you and your employees place a premium on customer service to generate
repeat business, establish protocols for how tasks should be accomplished, and remain
continually in the know on all things accounting.
An inadequate business pl an. Your business plan is your blueprint for success. A
well-thought-out business plan forces you to think about the future and the challenges
you'll face. It also forces you to consider your financial needs, your marketing and
management plans, your competition, and your overall strategy for coming out on top.
Failure to change with the times. The only constant in business is change. Once
mighty behemoths fall to earth while unknown upstarts rise to prominence. The ability to
recognize opportunities and be flexible enough to adapt to changing times is a key
ingredient to surviving and even prospering in the toughest business climate. Therefore,
learn how to wear multiple hats and to generate new interests and areas of expertise.
Ineffective marketing and self-promotion. Customers can't walk through your
front door if they don't know you're there. Learn how to cost-effectively advertise and
promote your business through such tried-and-true methods as direct mail, ads in local
newspapers, Web sites, blogs, even by sponsoring a local little league team. The number
of advertising and promotional ideas that exist is only limited by your own creativity.
Underestimating the competition. Consumer loyalty doesn't just happen; you
have to earn it. If you don't take care of your customers, your competition will. Watch your
competition as closely as you do your own employees.
Business Start-Up




The Seven Pitfalls of Business Failure
and How to Avoid Them

The latest statistics from the Small Business Administration (SBA) show that "two-thirds of new
employer establishments survive at lease two years, and 44 percent survive at least four years."
This is a far cry from the previous long-held belief that 50 percent of businesses fail in the first
year and 95 percent fail within five years.
Brian Head, Economist with the SBA Office of Advocacy, noted that the latest statistics are a
much more accurate assessment of new business success rates, and that "as a general rule of
thumb, new employer businesses have a 50/50 chance of surviving for five years or more."
Better success rates notwithstanding, a significant percentage of new businesses do fail. Expert
opinions abound about what a business owner should and shouldn't do to keep a new business
afloat in the perilous waters of the entrepreneurial sea. There are, however, key factors that -- if
not avoided -- will be certain to weigh down a business and possibly sink it forevermore.
1. You start your business for the wrong reasons.
Would the sole reason you would be starting your own business be that you would want to make
a lot of money? Do you think that if you had your own business that you'd have more time with
your family? Or maybe that you wouldn't have to answer to anyone else? If so, you'd better think
again.
On the other hand, if you start your business for these reasons, you'll have a better chance at
entrepreneurial success:
You have a passion and love for what you'll be doing, and strongly believe -- based on
educated study and investigation -- that your product or service would fulfill a real need in
the marketplace.
You are physically fit and possess the needed mental stamina to withstand potential
challenges. Often overlooked, less-than-robust health has been responsible for more
than a few bankruptcies.
You have drive, determination, patience and a positive attitude. When others throw in the
towel, you are more determined than ever.
Failures don't defeat you. You learn from your mistakes, and use these lessons to
succeed the next time around. Head, SBA economist, noted that studies of successful
business owners showed they attributed much of their success to "building on earlier
failures;" on using failures as a "learning process."
You thrive on independence, and are skilled at taking charge when a creative or
intelligent solution is needed. This is especially important when under strict time
constraints.
You like -- if not love -- your fellow man, and show this in your honesty, integrity, and
interactions with others. You get along with and can deal with all different types of
individuals.
2. Poor Management
Many a report on business failures cites poor management as the number one reason for failure.
New business owners frequently lack relevant business and management expertise in areas such
as finance, purchasing, selling, production, and hiring and managing employees. Unless they
recognize what they don't do well, and seek help, business owners may soon face disaster. They
must also be educated and alert to fraud, and put into place measures to avoid it.
Neglect of a business can also be its downfall. Care must be taken to regularly study, organize,
plan and control all activities of its operations. This includes the continuing study of market
research and customer data, an area which may be more prone to disregard once a business has
been established.
A successful manager is also a good leader who creates a work climate that encourages
productivity. He or she has a skill at hiring competent people, training them and is able to
delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and
able to confront change, make transitions, and envision new possibilities for the future.
3. Insufficient Capital
A common fatal mistake for many failed businesses is having insufficient operating funds.
Business owners underestimate how much money is needed and they are forced to close before
they even have had a fair chance to succeed. They also may have an unrealistic expectation of
incoming revenues from sales.
It is imperative to ascertain how much money your business will require; not only the costs of
starting, but the costs of staying in business. It is important to take into consideration that many
businesses take a year or two to get going. This means you will need enough funds to cover all
costs until sales can eventually pay for these costs.
4. Location, Location, Location
Your college professor was right -- location is critical to the success of your business. Whereas a
good location may enable a struggling business to ultimately survive and thrive, a bad location
could spell disaster to even the best-managed enterprise.
Some factors to consider:
Where your customers are
Traffic, accessibility, parking and lighting
Location of competitors
Condition and safety of building
Local incentive programs for business start-ups in specific targeted areas
The history, community flavor and receptiveness to a new business at a prospective site
5. Lack of Planning
Anyone who has ever been in charge of a successful major event knows that were it not for their
careful, methodical, strategic planning -- and hard work -- success would not have followed. The
same could be said of most business successes.
It is critical for all businesses to have a business plan. Many small businesses fail because of
fundamental shortcomings in their business planning. It must be realistic and based on accurate,
current information and educated projections for the future.
Components may include:
Description of the business, vision, goals, and keys to success
Work force needs
Potential problems and solutions
Financial: capital equipment and supply list, balance sheet, income statement and cash
flow analysis, sales and expense forecast
Analysis of competition
Marketing, advertising and promotional activities
Budgeting and managing company growth
In addition, most bankers request a business plan if you are seeking to secure addition capital for
your company.
6. Overexpansion
A leading cause of business failure, overexpansion often happens when business owners
confuse success with how fast they can expand their business. A focus on slow and steady
growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies.
At the same time, you do not want to repress growth. Once you have an established solid
customer base and a good cash flow, let your success help you set the right measured pace.
Some indications that an expansion may be warranted include the inability to fill customer needs
in a timely basis, and employees having difficulty keeping up with production demands.
If expansion is warranted after careful review, research and analysis, identify what and who you
need to add in order for your business to grow. Then with the right systems and people in place,
you can focus on the growth of your business, not on doing everything in it yourself.
7. No Website
Simply put, if you have a business today, you need a website. Period.
In the U.S. alone, the number of internet users (about 70 percent of the population) and e-
commerce sales (about 70 billion in 2004, according to the Census
Bureau) continue to rise and are expected to increase with each
passing year. In 2004, the U.S. led the world in internet usage.
At the very least, every business should have a professional looking and well-designed website
that enables users to easily find out about their business and how to avail themselves of their
products and services. Later, additional ways to generate revenue on the website can be added;
i.e., selling ad space, drop-shipping products, or recommending affiliate products.
Remember, if you don't have a website, you'll most likely be losing business to those that do. And
make sure that website makes your business look good, not bad -- you want to increase
revenues, not decrease them.
When it comes to the success of any new business, you -- the business owner -- are ultimately
the "secret" to your success. For many successful business owners, failure was never an option.
Armed with drive, determination, and a positive mindset, these individuals view any setback as
only an opportunity to learn and grow. Most self-made millionaires possess average intelligence.
What sets them apart is their openness to new knowledge and their willingness to learn whatever
it takes to succeed.
The 9 reasons why businesses fail
Starting a business from scratch is not easy. In fact, over 50% of small businesses fail in the first
year and 95% fail within the first five years. Why? What goes wrong?. Below are the common
pitfalls to be aware of and plan to avoid.
Poor marketing: Successful businesses are ones that understand and meet the requirements of
their customers, you must know who your client is. Learn the basics of marketing and make sure
that you track the success or failure of each marketing technique you use, then dump those that
arent working.
Make certain your marketing strategy sets you apart so a customer can clearly see why they
would rather go to you than a competitor.
Cash flow problems: Many businesses struggle through poor cash flow management. You need
to be able to live for one to two years without income when getting started; often businesses are
very slow to get off the ground. Also, you have to create and use a realistic business budget, and
not constantly drain the business income on personal spending.
Tight control and monitoring is essential.
Poor business planning: A business plan should cover aspects such as marketing, finance,
sales and promotional plans, as well as detailed breakdowns of costs and profit predictions. Many
business owners think that dedication and hard work will pull them through. A global look at the
business, frequently updated, is essential to assure success. If the skills are not present to
prepare one, no other allocation would be as effective as obtaining professional assistance.
Maintaining poor books and records - which results in having no conception of profits, costs,
margins, sales or customer ratios. The business owner is then unable to make intelligent
decisions because of the lack of this information.
Good planning means that youve looked at all the aspects of your business and are prepared to
handle problems when they arise. Your business plan helps you to focus on your goals and your
vision, as well as setting out plans to accomplishing them.
Lack of finance: Insufficient finance often means that businesses are unable to take
opportunities available to them, or have to compromise - going for high cost solutions to
problems, rather than lower cost ones that would yield greater competitive advantage.
Failure to embrace new technologies and new developments: In a fast changing world leading
businesses are ones that make best use of advanced modern technologies in an appropriate
way. That allows them to work more efficiently
Poor choice of location: Location is a very important business decision. A good location is one
that appeals to large numbers of customers, while at the same time minimising costs. If your
business runs out of commercial space, you need to make sure that you are convenient to your
customers, and near to your suppliers and your employees, with good easy communication
routes.
Poor management: Weak and inexperienced management is one of the major causes of
business failure. Managers have to lead a team to be motivated and accountable.
Poor human resource relations: Successful businesses motivate their employees to work hard
to help the business succeed. Failing to develop an orientation system for new employees or to
follow through on personnel development to foster a team spirit. Conversely, many owners are
unable to swiftly discharge poor performers without fear or favour.
Lack of clear objectives: Successful organisations have clearly focused and communicated
objectives that enable everyone in the organisation to pull in the same direction.








The 6 Untold Reasons Why Businesses Fail
There have been many articles written on the subject of why
businesses fail, and most of them point to the same reasons, such
as:
-Inadequate funding
-Bad location
-Lack of a well thought-out business plan
-Poor execution
-Bad management
-Expanding too quickly
-Insufficient marketing or promotion
-Inability to adapt to a changing marketplace
-Failure to keep overhead costs low
-Underestimating competitors
These reasons are widespread and no doubt cause many businesses to fail. However, the
reason for a companys failure is not always something so obvious. Here are 6 lesser-
known reasons why a business might fail.
Why do these reasons remain untold? Simple. Most of the time, the business owner
doesnt realize that these reasons are what caused their failure, and consultants generally
dont ask the kinds of questions that would identify them.
1) Focusing on Short-Term Profits Rather than Building Long-Term Value
Its important to be profitable, but NOT when short-term profits come at the expense of
the long-term value of the business and the lifetime value of the customer.
Heres a real-life example: In the late 1990s, there was a franchise of a national smoothie
shop located in West Los Angeles, CA. At this store, smoothies sold for about $4. They
cost only around $1 to make, resulting in a solid profit. However, certain ingredients, like
mangoes and berries, cost more than the other ingredients, such as juice and frozen
yogurt. Since juice and frozen yogurt were cheap, the franchisee put more of these
ingredients in their smoothies and less of the expensive ingredients. By doing this, their
profit margin per smoothie grew by approximately 20 cents, which seemed great on
paper. Unfortunately for the store, customers werent satisfied with the taste of the lower
cost smoothies, people stopped going there, and the store eventually went out of business.
As you can see here, its important to consider the lifetime value of a customer. Repeat
business is way more valuable than short-term profits. Saving 20 cents on a smoothie
today will cost you big in the long run.
(Another great example of this concept is Google giving preference to relevant ads in
order to improve the user experience, even though there are less relevant advertisers
willing to pay a higher price per click.)
2) Ego Business vs. Business Opportunity
The foundation of a good business is a good business opportunity. As an entrepreneur,
you want to fill a need in the marketplace. Unfortunately, many businesses are started
solely to fulfill an entrepreneurs ego (or, to put it less harshly, to satisfy one of the
entrepreneurs interests).
This can often be seen in the restaurant & bar industry, where too many entrepreneurs
open shop because its a cool thing to do. Such businesses rarely succeed.
3) Life distractions
The best ideas dont always come between 9 and 5. A person might have a great idea
while driving, or in the shower, or while working out. Its moments like these when an
entrepreneur leaves behind the day-to-day tasks of running a business and gains a better
perspective of the big picture.
Sadly, there are a lot of things that can disrupt a persons home life. Illness, death of a
family member, divorce, relationship trouble, and problems with a child are just a few of
the many issues that can affect a persons mindset. When things like this occur, moments
of clarity are replaced by stress and anxiety.
Many entrepreneurial ventures depend heavily on new ideas and creative thinking, and
when an entrepreneurs head isnt clear, business can suffer.
4) Bad feedback & white lies
People like spending time with friends and family.
Unfortunately, when it comes to business, friends and family members dont always give
the best advice. This is especially true at the birth of a business. Nobody wants to be a
buzz-kill. No one wants to tell an entrepreneur their idea is bad, or their location stinks,
or anything else negative. Most people are conditioned to be supportive of their friends
and family regardless of the situation.
Plus, nobody wants to be wrong. Imagine your friend has an idea that you think is
terrible. You share your objections, but the friend goes ahead with the idea anyways, and
it succeeds. Now youll always be the naysayer that never believed in them. Nobody
wants to be that person.
Thats why youll rarely get honest, objective business advice from friends or family
members. And yet, oftentimes friends and family are the first people entrepreneurs turn to
for advice.
5) Maybe the owner is just a jerk
There are a lot of great people in the business world, but there are also some jerks. And
these jerks sometimes start their own companies.
A jerk, in this case, is someone who a lot of people cant get along with. Maybe its
because theyre a super-perfectionist, or they yell a lot, or they demand that everything be
done in a certain way, or they constantly complain. Or maybe theyre annoying in some
other way.
The key is that nobody -- not employees, customers, partners, suppliers, clients, etc. --
wants to give 100% for a jerk. Clients and customers will be turned off, and employees
will start cutting corners. Most people believe that life is too short, and dont want to
spend their time working with someone they cant get along with.
6) The entrepreneur never took the full leap
In most new business attempts, the entrepreneur never leaves their day job, or they create
a back-up plan, or they have a job lined up in case the new business fails. In these cases,
failure IS an option, as the entrepreneur has a safety net to fall back on. In cases where
failure is NOT an option, and the entrepreneur depends on the new business to provide
food, shelter and clothing, the business has a greater chance of succeeding.
Theres a great example of this concept in this recent NY Times article. Xiang Yu was a
third century (B.C.) General in the Chinese army. He led his troops into enemy territory
by crossing the Yangtze River. Then, in order to inspire his troops, Xiang Yu took some
unorthodox measures. He burned all of his troops ships and destroyed all of their
cooking materials. This left the troops with only two options: Move forward and conquer
the enemy, or perish. The maneuver did not make Xiang Yu very popular with his
soldiers; nevertheless, the troops advanced and ultimately emerged victorious.
Xiang Yus methods might be a little drastic in this day and age, but the moral of the
story is whats important. Author Anita Roddick has said that entrepreneurship is a matter
of survival, and the truth is, if youre not totally committed to your business, your
chances for success will be greatly diminished.

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