5 Most Common Reason for Business Failure

What’s often less obvious is why these enterprises haven’t enjoyed the success that was initially anticipated.

With that in mind, here are the five most common reasons for business failure and how you can avoid your business becoming a statistic.

Lack of research

Research is critical throughout the business journey, not just at start-up. After all, customers’ needs change over time, and new threats and opportunities emerge.

So what research should you be conducting? 

When starting a business, this research includes assessing:

• Demand for the product and services
• Market research including identifying your ideal customer
• Cost analysis
• Existing competition in the marketplace
• Identifying your point of difference

Meanwhile, as your business matures, further regular research is paramount, and includes:

• Continued identification of your ideal client
• SWOT (strengths, weakness, opportunities, and threats) analysis
• Customer feedback 
• Marketing analysis

Poor cash management

In any business cashflow is king. But it’s an area where a lot of business operators can quickly find themselves struggling.

To reduce the risk of poor cashflow management, ensure you have systems and procedures in place for activities like invoicing and accounts receivable.

Meanwhile, every business operators should know their numbers intimately, including:

• Their break-even point
• Ongoing costs (including staff costs, premises costs, and insurance and licensing)
• Profit and loss

Bad planning, or lack of strategy

At every stage of a business journey, planning and strategy underpin its success, yet too often business operators create their initial business plan and then fail to refer to and update it.

As the business owner, ensure you designate time for planning, regardless of how caught up you are in the day-to-day operation of a business.

This planning helps you define strategies for growth or identify opportunities for improvement.

Poor leadership

Effective leadership is critical to the success of any business. This leadership involves communicating with your team, defining your business vision and creating action plans to ensure your business realises its potential.

While good leadership comes naturally to some, for others it’s a skill that needs to be learned, and mastering the skill of great leadership is an investment in the future of your business. 

Too few customers

Plenty of businesses fail because they have too few customers. Although this sounds simplistic, there’s actually a wealth of reasons this might be the case.

Perhaps, it comes down to poor marketing. Maybe it goes right back to the beginning of the business and the market research you initially undertook.

It can also be due to the fact you have not listened to the existing customers you have or their needs have changed over time.

But importantly, it can also be due to the fact you have an over dependence on a few big clients.

This can be a threat to your business as all of your eggs are in one basket. Should something happen to that customer and they no longer choose to use your products and services, where will that leave your business?

To combat this risk, ensure you:

• Clearly identify who your ideal client is, and revise this definition regularly
• Know your target market, including who they are, how often they purchase and where you can reach them with marketing
• Regularly undertake SWOT analysis
• Seek feedback from your existing customers
• Have a range of clients, not just a couple of big ones

The final word

Yes, businesses can and do fail and sometimes that might be down to reasons beyond your control.

But as you can see, the most common reasons for business failure are actually preventable with good management, good planning, strategy, and a solid insight into your business risk.

If you would like assistance in planning, strategy and determining areas for business growth, I’m available to assist, and you can book a discovery call with me here.