Common Causes of Business Failure (And how to Avoid Them)

Failure will never really be at the forefront of a business owner’s mind when they launch a company. That being said, four out of ten companies are unable to make it past the first five years. Of course, it is always worth keeping an eye on the warning signs so that you can make sure that your business isn’t going to fall victim to things that could have well been avoided. If you want to find out more, then simply look below.

Poor Cash Flow

You may be sick and tired of being told that cash is king, but that doesn’t change the fact that improper cash flow management is often the downfall of a lot of companies. Even profitable companies can fall victim to the cash flow crisis, and this is the last thing that you want to happen to your company. You may find that high stock levels, poor debt and even late invoicing really works against you. If you want to stop this from being the case with your company, then you have to make sure that you put in the work to monitor your cash. You also need to make sure that you are taking the time to understand your position with your clients so that you can pre-empt any potential issues.

Source: Pexels (CC0 License)

Losing Control of Money

Any business owner has to be aware of their financials and their cash position at any moment. You need to be able to accurately forecast any income and you also need to make sure that you understand and control your costs. This will help you to minimise any nasty surprises. If you can, you need to hire a qualified accountant. You also need to make sure that you are investing in a good accounting software. Having one that works through the cloud will really work in your favour. Having small business loans can help you to sustain your business until you can get to the point where you can make a profit, but at the same time, you have to make sure that you are managing your money wisely.

Bad Planning

If you fail to plan, then you plan to fail. Long-term planning is the key to success when it comes to your business. When mapping out the growth of your business, you have to make sure that you do your market research. You also need to establish who your customers are and what they need. Recognising competitors and being proactive regarding any trends will help you as well. This will stop you from being left behind and it will also give you the chance to adapt quickly enough so that you can develop good habits early on.

Weak Leadership

A good leader will always recognise the skills that they have and the jobs that they do not have time for. They will then outsource or seek professional help so that they can fill in the gaps. As a leader, you have to make sure that you communicate and that you also offer people the chance to grow on a personal level.

Failure to Understand Customer Behaviour

We live in a very connected age. They say that the customer is always right, and this is more true than ever. Today’s consumers expect brick and mortar companies to accept Apple Pay and even credit cards. Even if you have a very small store, this is still essential. They also demand quality customer service.  If you do not deliver it, then you can expect your customers to complain on social media. If you want to help yourself here, then don’t try and do everything yourself. Hire someone to manage your social media page so that you can respond to messages quickly. You also need to make sure that you are taking on board what they are saying about your company as well so that you can make the required improvements. Hearing what your customers have to say isn’t good enough. You need to listen to them and take action when and where required.

Inventory Management

Your company cannot be successful if you are not managing your inventory very well. Studies have shown that poor inventory management is the biggest reason why most companies fail. If you have poor inventory management, then you may find that you end up having inventory shortages and overages as well. These are silent cash flow killers. It’s a rookie mistake and it can easily happen to you as a new business owner. The best way for you to try and combat things like this would be for you to use inventory management software. If you are not keeping track of the items that are high in demand, then you will experience shortages, and this will shrink your potential profits. If you are a merchant, then you will be taking on a certain amount of risk when you buy large amounts of inventory. If you do not sell these products as quickly as you forecasted, then this could mean that it loses out in value. You will then have to sell it at a deep discount or risk not selling at all. Instead of thinking of stock items as inventory, think of it as being hard cash. Every product that you have in storage right now is money you’ll never see purely because it is not contributing to your ROI.

Growth that is Not Sustainable

When it comes to business, it’s safe to say that slow and steady wins the race. Most of the time, if you expand too quickly, this will cause you to lose out. You may find that expanding too quickly puts a huge amount of stress on your credit and this can backfire if the market takes a turn for the worst or if you hit a rough patch. Trying to take on more business than you can handle will usually result in your quality declining. This is the last thing that you need, so make sure that you are committing to growth that is sustainable, and also make sure that you are smart about the customers who you choose to deal with. This is the secret to business success.

0 Responses to “Common Causes of Business Failure (And how to Avoid Them)”


Comments are currently closed.