Are you afraid of failing and losing your company? If YES, here are the top 7 reasons for business failure :
1. Poor management and lack of proper planning
Just like an architect must first create a project, an entrepreneur must have a blueprint. The key to business success at this stage of development is having a thoughtful and well-designed business plan. Traffic around your community can show you the revolving door syndrome of closing outlets and starting a new business a few months later.
The service industry has suffered the same fate. A common suspicion of these setbacks is usually a lack of planning. No matter what kind of business you would like to start, it must have a good manager in charge. Good management includes everything from customer service to an efficient office.
2. Lack of cash flow and capital
Cash flow describes the movement of money in a business. Businesses often start with people with very little money to invest in a startup and not enough to see a business in the first two fragile and critical years. Without sufficient capital investment, the survival and growth of a business are very difficult.
Without money to buy the necessary equipment, support, monthly overheads, or marketing to start a business, a venture cannot start on a positive note. Medium businesses start with minimal capital, often borrowed from family and friends, bank credit cards, or high-interest loans.
It is advisable to know where your funding will come from, the repayment terms and if the business can afford to answer the debt. If you can't afford to borrow, don't do it. Review your business plan. The business must have a cash flow forecast so that it can know the amount of cash coming in and out of the business.
Even if the forecast is only a forecast, it will help you understand what holds your financial future. Using the forecast, you can predict likely sales and expenses, and you can also use other effective cash flow management techniques such as timely invoicing, advance deposit payments, timely invoice payments, and immediate tracking of late customers.
3. Wrong location
Since competition from large enterprises already poses a threat to small businesses, location is the key to a successful business. For example, a hairdressing business in an industrial area is unlikely to be successful. Despite the simple logic, some people are still trying to find their business in impractical areas.
Some owners simply choose the location because of the cheap rentals. This is a very big mistake. Research shows that the average consumer will travel no more than three quarters, especially if there is a closer alternative. No amount of advertising will entice customers to go that far from their location if they can conveniently buy the same product elsewhere. Traffic jams, visibility and parking are all vital for retail.
4. Inadequate marketing plan
A marketing plan is an integral part of a business plan, but many people do not plan how they will promote their new business. Some people simply print flyers and advertise in the local newspaper and then wait for the phone to ring.
Every business needs a structured marketing plan where you find marketing techniques tailored to your business. In small and home businesses, marketing is generally considered the biggest obstacle for business owners.
5. Competition not well researched
Many aspiring entrepreneurs delve deeper into a specific business niche without first analyzing the competition that already exists in this area. Take the time to properly research this aspect of your business. With the growing number of home-based businesses, knowing who is competing and where can be time consuming.
Too many stores offering the same service in the same geographic area will definitely run into trouble to break even and therefore offer special profit opportunities to attract customers. Also think about the future. What happens to your business if a large store that sells your product or service for less money opens a few blocks away?
There are no rules prohibiting companies offering the same services from opening next to each other; you just need to determine when not to join.
6. Wrong business choice
Be an expert in your field and love what you do. Starting a business because it seems like an easy way to make money is not smart. View consumer economic long-term trends and assess your business community. Whether you are buying an investment business opportunity or purchasing an existing one, you will need an accountant to consider the offer.
Many unprofitable companies were well represented thanks to professional presentation, skillful phrasing and good sales. A professional portfolio is often hidden for a real reason that required the sale of the business, which is usually a lack of profit. Some people think they can take a business and do better than the last person. If this is your first business purchase, don't count on you doing miracles.
7. Business is growing too fast
It may sound strange, but the rapid and unexpected growth of a business can be ruinous. If a business started with minimal cash flow, especially with a large margin, rapid growth can create all kinds of problems. Sudden growth can mean your location is no longer suitable and it is costly to relocate your business.
In addition, requirements for inventory, personnel, equipment upgrades, etc. must first be paid profitably. There is always a delay between the need for additional funds and the possible return of funds to the business from sales. The sudden growth creates additional demand for your managerial skills.
Any of these aforementioned factors can lead to a business failure, but a combination of several factors can lead to the death of any business.
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