Why do businesses fail?

Why do businesses fail?



Why do businesses fail?

Most people will have at least one business idea in their lifetime.  Some will think of this as a dream scenario and nothing else, while others will try to make it a reality.  This is our first learning curve: are we making our business for the wrong reasons?

The reason behind having your business could literally make or break it.  Having a passion for what you love based on market research and investigation could show there is a need for it on the market place.  Having ambition, patience and a positive attitude is needed as there will be many times you will want to throw the towel in.  Be realistic there may be small failures along the way we all make mistakes.  Studies have shown that successful business owners owe their success to building on earlier failures.

Poor management also a big factor from new business owners who are frequently lacking relevant business and management knowledge. If the business owner doesn't recognise that they need help, the company many fail and go out of business. To fix the problem, small business owners can educate themselves on skills they lack, hire skilled employees, or outsource work to experienced professionals.

Money or lack of is also a key player.  Businesses need sufficient operating funds. New business owners underestimate how much they will need for a start up or have an unrealistic expectation of income from sales.  On average it takes at least two years for a business to cover all its costs.  In the meantime, you will have to cover all aspects such as rent, overheads and stock.


The location of your business is also a factor- Can passing trade get to you? Things to think about are Accessible parking and traffic. Are there traffic lights nearby for walking customers?   Do you have many competitors in your area? Are you trying to compete with a large established firm with lower prices?



Plan, Plan and Plan


It is critical for businesses to have a business plan laid out. It must be realistic and accurate. Many businesses can fail on this alone. You should be analysing your Work force needs, equipment and supply list, sales and expense forecast. Analysis of competition, Marketing and advertising activities. Budgeting and managing company growth.


In our society today, it’s hard to believe that anyone doesn’t use the web and social media.  In the business world a website and a social media presence is needed. Your website needs to function well and have a modern design, at the bare minimum you should have all your contact details on the website updated regularly.  Social media is great for brand building a free way to get yourself known but you will need to put work into this.

Business growth


It is vital you know when expand your business.  There is a focus on slow and steady growth, a marker of when to expand could be that you are not filling a customer needs in a timely way or employees cannot keep up with production.


What can I do if my business is failing?


Look at why customers are not returning, reaching out that the customer asking how their experience has been with your company and how you can make their experience better.

If money is the reason you are thinking of closing the doors, what can you do?  Look at your expenses and outgoings – can you cut down or cut out? You may need to look at your finances every week to pin point where exactly finances are going.  Some options are to ask the land lord to lower the rent, reduce employee’s hours or ask existing suppliers for discounts.


As you evaluate your business, you may see many areas that entail change. The key to making change happen is to list what needs to be done and estimate what effect each change will have on sales and profits.

When you prioritise your list ask yourself what are the easiest ways to increase profits more quickly? What should you be doing on a longer-term basis to ensure your business continues to grow.  Review your business plan based on your answers, then you can start to implement your plan.

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