Top 15 Reasons Businesses Fail – Part 1
Top 15 Reasons Businesses Fail:
Why do businesses fail? A question that is asked time and again. Every year we see many businesses stop, some before they even get going. Statistics for Australian businesses show that 20% of businesses will fail within their first year, and a further 60% of those left will fail within 3 years.
Is there a way to protect your business from failure? Yes. Here are the Top 15 Reasons that can take a business towards failure. Work on avoiding these and you are on your way to success in order to make adjustments along the way.
1. Lack of Direction
Ask yourself these questions:
- Do you have a business plan? Is it written down?
- Do you have business goals? Is it written down?
Many business owners will tell you that they have a plan, and goals, and it is all in their heads. They don’t need to write them down because they “know” them. However, if you ask any successful businessperson, they will tell you that their success comes from proper planning, writing out their plans and goals, and, reviewing and working on them regularly.
Not having written goals and plans, that we review and work on regularly, leaves the business with a lack of direction. When we have a lack of direction, we can easily be distracted by the day-to-day, “urgent” tasks that always pop up. Not having a written plan or goals means that our focus is easily distracted to those urgent and unimportant tasks,
whereas, having written goals and tasks can help us get the focus back to what matters most.
Some business owners I have worked with have told me that they “know what they are doing” and don’t need to do that “writing out stuff” as it is all a waste of time. These are the owners that, within the same conversation will say things like – “I can just never seem to get on top of things”, “I seem to be working longer and longer”, “I just don’t know where the day goes”, “I am always fighting fires”, or any number of similar phrases. You know, you
have heard them and may even have uttered some of them yourself.
As Benjamin Franklin is supposed to have said, “Fail to plan and you plan to fail”.
Without a plan, you don’t have direction and, more importantly, you can’t measure your progress towards your success in order to make adjustments along the way.
This is where the business owner believes that they can make a lot of money quickly and easily. Then, when things don’t turn out the way they thought, they lose heart or panic, throwing money at the wrong parts of the business to “speed it up”.
Things to remember:
- Everything takes at least three times as long as you calculated.
- Everything costs at least twice as much as you thought it would.
- Nothing works properly the first time or the first few times.
Where this can play out is when we are planning our business and rely on certain sales or revenue coming in quickly to pay debt or fund further growth. What happens if it doesn’t?
Expecting to be successful too soon can lead to early disappointment and eventually giving up. Be practical in your expectations and follow your plan. If in doubt, seek advice.
So many times, I have had friends and family come to me, full of excitement about a new business venture that will make them a fortune in a short time. How many actually achieved it? None. As with all things, success takes time and work to make happen.
We can easily get caught up in the excitement of a new business and the prospective success that we can see occurring. However, we need to make sure we plan out our approach and work the plan. Failure comes when the owner is looking for a way to make a quick killing and become an instant millionaire.
The thing to remember is: “The only thing easy about money is losing it.” (John D. Rockefeller).
4. Action without thinking
There is a saying that goes: “1 hour of planning saves 10 hours in execution”.
Inexperienced business owners will often commit time and money foolishly, without considering the consequences, for the purpose of cutting corners or avoiding the harder work.
Take the time to get all the facts and think things through. Ask yourself, how does what I am about to do fit in with my business plan? Will it take me closer to achieving it?
5. Poor cost control
Many business owners spend too much money on unnecessary things, especially at the beginning, again as a way to shortcut the road to success or to find some silver bullet to help avoid hard work. I have had many clients that spent their funds on what they thought were “essentials”, or “time savers”. Here are some examples:
- Buying a suite of business templates for Word, Excel, Powerpoint – and never having a use for them.
- Buying into online programs, training, books, etc to get the skills they think they need to be successful at business, and then never starting them.
- Renting an office or workspace big enough to support future growth – when the company is just one person.
- Buying advertising when they aren’t sure of their product or customer.
Practice frugality in the beginning to help build a sound financial base for your company. Then plan for how your precious revenue will be sent, keeping reserves to cover the quiet times. Follow your plan and constantly review for changes in the market.
Next time, we will cover reasons 6 through 10 of why businesses fail:
6. Poor quality of Product or Service
7. Insufficient Working Capital
8. Bad or No Business Budgets
9. Inadequate Financial Records
10. Loss of Momentum in the Sales Department
The most important thing to remember with all of these is, don’t expect to know everything, reach out to a business coach for support to ensure you continue your business success.