Top 10 Reasons Small Businesses Fail

Sturdy business plan. Dedicated staff. Strong investment base. Loyal customers. Even with all these factors, a business can fail. The reason for the failure may be the economic climate or a decrease in the need for your product. Being aware of what causes failure can help you succeed.

Failure of a business may happen unexpectedly or you may see the signs for many months before the business fails. Why businesses fail is a difficult question to answer. A business may fail due to one or many factors:

1. Running Out of Cash

A business with a strong business plan should have more than adequate cash reserves to keep the business running through good and bad times. Should your business have a slow sales month or need to hire extra employees to cover a busy holiday buying period, cash flow should be in place to cover the unexpected need.

When a business cannot recover from the unexpected, it will fail. A search for investors or a turnaround specialist may save the business.

2. Not Preparing for the Unexpected

Fraud, litigation or a change in laws may result in your business failing. Some catastrophic events, like fire, floods, and wars will be covered by insurance, while other events cannot be anticipated, and may cost more than a business has to cover it.

3. Growing Too Fast

A booming business should not be a problem, unless your business grows too fast through overtrading of stocks, or if a company grows too fast to keep up with order distribution. A business that expands more rapidly than available cash reserves will falter and may ultimately fail.

Whether you are a family owned garage door company in Pretoria, or a multi national firm, fast growth can be dangerous.

4. Not Planning Ahead

You should have a robust business plan in place to anticipate the unexpected. Cash reserves should ensure that the business operates in spite of economic downturns.

You also need a strong management team to oversee the day-to-day business and prepare it for potential crises. Without a team and a plan in place, the business will simply limp along from day-to-day. Regular strategy meetings with key staff should address real-time happenings. During these meetings devote time and resources to creating a plan for the “what ifs.”

5. Falling by the Wayside

A once thriving business may begin to make less profits than competitors. Fewer profits mean less money is invested back into the business. Fewer staff can be hired. New equipment cannot be purchased. In short, the business cannot keep up with its rivals.

6. Robbing Peter to Pay Paul

As a business falters, management may get creative with finances. Cash may be borrowed from one account to pay off a creditor. If you cannot buy supplies or materials needed for production, your company may begin to struggle. A business cannot withstand the shortfalls and poor management of resources for the long term.

7. Management Problems

There’s a saying, “One bad apple can spoil the bunch.” In good times, a bad manager or poorly run management team can be ignored. When the business is failing, a manager who won’t listen to suggestions from his team will drag down the business.

8. Not Rolling with the Punches

Business is always changing. Customers change or move to other companies. New technologies are invented. The demand for a product disappears following a health scare. It’s key to be able to quickly adapt to the changing business climate in order to thrive.

9. Not Marketing Enough

So many business owners don’t want to take some of their hard earned cash to spend on online marketing, but that’s the one thing that will help your business grow. Set aside a percent of revenues for marketing, even if it’s not much, to ensure you help spread the word about your company.

10. Not Knowing Your Customers

Your company is about your customers, not you and your preferences. If they are on social media sites, so should your business. If they want new features in your products, give them what they want. Ignoring what your customers ask for is a deadly way to quickly end your business.

Succeeding Anyway

Don’t let this list scare you. With planning and attention to your business, you will be able to thrive in even the worst economy.

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