18 Reasons Why Businesses Fail and Effective Solutions (Infographic)

Having a ride on the entrepreneurial roller coaster can be a tricky thing. While thriving on profit-making opportunities, business owners often fail to cope with new challenges. As a result, they find themselves at sixes and sevens and this is why businesses fail woefully.

And in the worst scenarios, they can’t even figure out what actually went wrong!

Sounds crazy, right?

Of course, running a business is no easy task.

But don’t worry folks!

Today, you’re going to know the main reasons for which most businesses fail.

Wondering how this would help you?

By identifying the main reasons for which most businesses fail, it would be easier to avoid them proactively. And for your convenience, effective solutions to those complications are also lined up that no one is going to tell you before you actually get into dire straits.

So:

What are the major causes of business failure?

Just keep reading…

#1 Poor Management Skills

Your business can fail if you don’t possess quality management skills. Whether it’s about financial aspects or man management, poor administration impairs the entire process. Eventually, the overall aesthetics of the business gets affected due to bad management.

Here’s how you can make the best use of management skills:

• Make good management decisions
• Have the vision to lead your organization
• Hire right people to delegate responsibility
• Supervise staffs regularly
• Resolve critical issues quickly

Management of a business encompasses several activities: planning, organizing, operating, directing and communicating. Do these things methodically to prevent business failure.

#2 Misplaced Focus

The focus is the art of converging your efforts into functional activities.

Entrepreneurs often think about making their services too much multidimensional. When that goes across the board, your resources get overstretched unnecessarily. As a result, your brand would be less effective to attract customers. This is considered as one of the major reasons why businesses fail.

So, how to prevent a business failure that has been caused by your misplaced focus?

Here are some effective ways to do it:

• Establish a niche for your business
• Set achievable goals
• Prioritise your activities
• Focus on being great at what you can offer best
• Put importance on customer satisfaction

Don’t think about becoming the jack of all trades. Just concentrate on the right segments, and you would surely make the best out of your services.

#3 Incompetency in Planning

Strategic planning is crucial for your business success. As your business starts to grow, you will need increased revenues to pay more employees. With bigger facilities, there will be a hike in the production costs too.

In such circumstances, not having a right plan can affect your business growth significantly.

Have you ever thought why plans fail?

It is because of:

• Not understanding the business environment
• Partial commitment
• Not having a clear roadmap
• Narrow focus

Here’s how to plan tactically:

• Simplify your thoughts and stick to the basics
• Get inside the minds of your competitors
• Make accurate projections
• Have enough capital
• Know your strengths and weaknesses and plan accordingly

With these actionable steps, now you know what to do when your business is in trouble as a result of wrong planning.

#4 No Performance Monitoring

As you successfully devise a plan, you feel quite confident about the proceedings. But that’s not the end of it! Failure to adapt to market changes and technological aspects can affect a business greatly.

So, what to do when there is a lack of performance monitoring?

Try these to resolve the issue:

• Review your services regularly
• Be reactive to competition
• Clearly, define your value proposition
• Gather relevant data

Ask yourself:

• What’s the value I am providing to my customers?
• Do my services connect with what has been promised earlier?

You should constantly evaluate the process to ensure you’re meeting the business goals.

#5 Premature Scaling

Scaling is essential for the positive growth of a business. But when a business starts to spend money beyond the essentials, they unknowingly risk everything to unknown possibilities.

For example, if you hire more people than the requirement, or spend too much on marketing, it gets wasted. Premature scaling never helps to grow your business rapidly.

So, what should be the strategy to avoid business failure due to premature scaling?

Well, here are some effective ways to do it:

• Avoid hastiness in achieving business growth
• Take your time with funding
• Validate your market thoroughly
• Don’t drain your resources unnecessarily

Remember:

It’s good to grow strong rather than accelerating too soon.

#6 Funding Shortfall

Managing finance is one of the crucial aspects of any business. Besides securing your business, it also helps in business growth. As you proceed along with your business venture, you will require more funding to pay for:

• new employees
• developing new products and features
• raw materials
• supplies
• facilities

A company that has inadequate cash, may not execute the chosen strategies at the right time. Thus, it upsets the strategic plan which could have been essential to business growth.

So, how to fund your business properly?

• Get a bank loan
• Look for multiple sources of finance
• Try crowdfunding
• Seek help from angel investors
• Pay heed to strategic partnership

#7 Inadequate Profit

Profits are the life-blood of business that paves the way for growth. If you can’t achieve enough profit, it can result in:

• laying off employees
• selling equipment or assets
• closing of underperforming business facilities

Wondering how to increase business profitability?

Here are some useful tips to increase profit:

• Increase output
• Make better use of production capacity
• Reduce variable cost
• Raise product prices
• Ask for referrals
• Use digital platforms to decrease marketing costs

An excess amount of loss can eventually lead to business bankruptcy. On the other hand, generating profits continually prove your worth as an entrepreneur.

#8 Negative Cashflow

Maintaining cash flow properly is the crux of your business. Without this, your business cannot survive for long. Even the most profitable firms find themselves in deep water when the outflow is more than the earnings.

If the cash flow becomes consistently negative and the cash is used up, then the problem becomes even more serious.

The main causes of cash flow problems are:

• Low profits or massive losses
• Excess spending on production capacity
• Holding too much stock
• Allowing customers too much credit
• Overtrading
• Seasonal demand

So, how to avoid business failure due to negative cash flow?

Here’s the solution:

• Increase your sales.
• Ask for deposits or full payment in advance.
• Negotiate better payment terms with suppliers.
• Sell non-core business assets
• Be very selective in offering credit to customers.
• Acquire loans for emergencies.

If implemented properly, these can help you manage the crisis quite effectively.

#9 Insufficient Coverage

Life is full of surprises and you can’t predict everything in advance. This is also true in case of any business.

If you don’t have enough coverage for your business, the results could be catastrophic when there is a disaster. Eventually, you would end up asking yourself: why my business failed?

A good insurance coverage is pivotal for the survival of a business. It helps mitigate the risk of unforeseen damage. All you need to do is just pay a premium and can rest assured of avoiding most of the economic turmoil caused by unfortunate events.

Take a note of these things when you plan for insuring your business:

• While starting a business, perform a risk-management audit.
• Assess the potential risks of your business
• Do risk management analysis every year.
• Consult licensed agents about the right coverage.

So, it’s high time to have an adequate insurance coverage for your business activities.

#10 Limited Knowledge of The Market

The entrepreneur on the path to failure thinks business is all about how much one can make. He gets blinded by the thirst for money. Moreover, he doesn’t realize the need to refine his business IQ.

What does eventually happen?

His mind goes blank in the dynamic world of business. And in the end, failure becomes inevitable.

Sounds critical, isn’t it?

Well, you don’t need to panic.

Here’s how you can develop a good knowledge of the market:

• Carry out researches to know customer needs
• Know what your competitors are doing
• Focus on self-improvement

To be successful in business, you need to have adequate knowledge of the market. Put your finger on the pulse and be adaptive to the changing market needs. Staying innovative will keep your business alive in the competitive market.

#11 Small Customer Base

When you don’t have a large network of customers, it’s almost impossible to grow your business to further heights. Without a strong network in place, you’ll miss out on these benefits. Thus, you would lag behind competitors who have stronger connections.

Your contacts will provide you with potential clients, partnerships, suppliers and even employees. And if lucky enough, you may even come across investors or mentors who can provide you brilliant advice.

Follow these steps to grow your customer base:

• Support existing clients and bring new ones
• Offer great customer service
• Look for partnerships with other businesses
• Offer discounts and free trials

If you follow the above-mentioned steps, you would definitely get a better outreach.

#12 Ignoring Customer Needs

Sometimes, marketers get so engrossed in numerous facets, that they forget about focusing on customer needs. If you neglect customer needs or don’t get a right idea about what exactly they want from you, it can be a critical issue.

Here’s what you can do to focus on customer needs:

• Know what they like or dislike about your services
• Reply to their feedbacks with a positive tone
• Be innovative with your products
• Implement features that they look for
• Use web analysis
• Try surveys

Even if they like your services, maybe they would love it more if you improve or alter a particular feature. So, connect with them and find out their interests to provide services accordingly.

#13 Lack of Promotional Strategies

As a marketer, if you can’t improve your outreach, it’ll be hard to survive amidst tremendous competition. In the age of digitization, those who are not utilizing online marketing, often miss a lot of golden opportunities. People won’t even know about your services unless you make them aware of your presence in the best possible ways.

With digital marketing, you can be more interactive with prospective customers. It would help you in several ways:

• Higher visibility
• Real-time results
• Cost-effective marketing
• Useful information through analytics
• Higher ROI
• And many more!

Promote your services through various forms of digital platforms such as:

• Content marketing
• Social media marketing
• Newsletters
• Google AdWords
• Search Engine Optimization (SEO)

#14 No Data Security

The information that you gather about your employees, customers and business activities is highly sensitive. Any security breaches or physical damage can be devastating for a business. Moreover, organizations with poor data security practices can be sued legally.

So, what would be the best solution to business failure that is caused by unprotected data?

Don’t panic!

Here are some ways through which you can secure necessary data:

• Encrypt your data
• Add anti-malware protection
• Install software updates periodically
• Secure your network connections
• Change important passwords frequently
• Update your OS
• Limit access of sensitive information

#15 No Contingency Plan

Having an effective backup plan is crucial for the safety of businesses in hazardous situations. If you can’t face the negative situation efficiently, it might have a dramatic impact on your business.

Here are the main instances where contingency plan helps a lot:

• Mismanagement of assets
• Sudden opening created by retirements
• Unexpected departures of employees
• Death of an important personnel
• Natural disasters
• Inflation
• Recessions

To maintain your business operations smoothly, try the following things:

• Learn how to identify critical issues in advance
• Run thorough analysis to identify potential risk factors
• Identify operational inefficiencies
• Develop recovery strategies

#16 Inability to Become Unique

You may have great products to offer but your business is still falling.

Have you ever thought why so?

Maybe your products lack strong value proposition and the quality isn’t good enough to attract potential customers.

Would you be able to stand out in the competition?

The answer is – a big “No”.

Here’s what sets your identity apart from competitors:

• Conduct business in a way that is totally unique
• Develop a customized approach different from other marketers
• Bring distinctiveness by including exceptional aesthetics to the brand image

Thus, you can separate your services from the herd and make more profits.

#17 Unsatisfactory Partnerships

Bringing diverse contributors together can be a challenging thing in case of partnerships. When the objective doesn’t get unified and self-interests are valued more, businesses can fail catastrophically.

Having right kind of partnership can help you in several ways, such as:

• Access to marketing knowledge
• Wider pool of expertise
• Enhancement of competency in workforce
• Reputation and credibility
• Long-term stability

With right kind of business partners, it’ll be easier to succeed significantly. Therefore, find suitable partners to avail the benefits of collaboration.

Build trust and integrity with a common moto:

Share the Work; Share the Wealth!

#18 Choice of Location

At times, your organization might decide to relocate or open new branches in new places. Expansion can be a terrible thing if you don’t have a proper idea of the new location.

A place that can’t offer you good employees, customer base and adds excess expenditures on labour costs and transport, eventually would hinder your business extremely.

Before settling on business premises, focus on the following aspects:

• Whether your services can attract customers
• Where the suppliers are located and their accessibility
• Whether your business would get competitive advantage
• Local pay rates
• Utilities and other costs

Conclusion:

Failure can be a depressing thing. But knowing to learn from failure can help you strengthen your marketing strategies significantly. With the above-mentioned points, now you know what can be the main reasons of business failure and what to do when business is failing.

Now it’s your turn…

We would love to hear from you!

What do you think are the main reasons for business failure?

Have you got effective solutions to prevent those problems?

If you are still wondering how to get a right guideline, seek professional assistance.

And here’s the good news: