Business Management

Why Businesses fail

There are many reasons businesses fail and these have been well documented. This blog will serve as a reminder to some of the more common issues and I hope create additional focus by owners to avoid the same failure.



1. Weak Management
New business owners frequently lack relevant business and management expertise in areas such as finance, selling, production, and managing employees. Unless they recognize what they don't do well, and seek help, business owners may soon face issues of a failing business.

2. 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.

3. No long-term plan 
Often there is a focus on short-term profits. It is obvious that there must be profits but this should not be at the expense of building a long term value in the business and understanding the potential of long term customer relations. Building value requires hard work and planning based on good current information and a realistic forecast of the future.

4. Uncontrolled growth
Seem surprising? Too much growth? Over expansion can be fatal if the business does not have the resources to cope with growth including appropriate financing, personnel and capacity to meet demand. Sometimes less is more.

5. Poor Information
The business cannot be managed if owners do not know what is going on. Without accurate financial information the business is flying blind. Don’t expect the accounting firm who does tax filing to keep track of day to day business; that must be handled within the company by the CEO or top finance person.

6. Inefficient operations
Paying too much for rent, labor, and materials weakens the bottom line. The leanest companies are at an advantage and usually are more flexible and adaptable to market change. Not having the tenacity or awareness to negotiate terms that are reflective of today’s economy may leave a company uncompetitive.

The marketplace is rarely forgiving and owners need to eliminate missteps that certainly are avoidable with a little insight into business management.