According to a study conducted by the Small Business Administration (SBA), around half of all employer enterprises last at least five years and a third last ten years or more. This comes to contest the long-held belief that 50 percent of businesses fail in the first year and 95 percent fail within five years.
Although there are better success rates, a significant percentage of new businesses do fail. For experts, there are key factors that, if not avoided, will be certain to trouble a business and possibly destroy it forever.
Below are some top reasons why businesses fail and guidelines for staying away from them.
1.You start your business for the wrong reasons.
Ask yourself why you are starting a new business. Is it because you want to make a lot of money? Or you want to spend more time with your family? Or you do not want to be an employee? If so, you would better think twice.
However, starting your business for the reasons below will give you a better chance at entrepreneurial success:
- You love what you will be doing and you deeply believe, based on a strong study you conducted, that your product would have its value in the marketplace.
- You are physically fit and have the needed mental energy to face any challenge.
- You have determination, patience and a positive attitude.
- You are not afraid from failures and you learn from your mistakes to succeed the next time around.
- You are very creative when a smart solution is needed.
- You can deal with all different types of individuals.
2. Weak Management
Weak management is number one reason for failure. New business owners do not have sufficient expertise in many business and management areas such as finance, purchasing, selling, production, and hiring and managing employees. They have to seek for help so they do not face disaster.
New business owners should not as well neglect their businesses. They should regularly study, organize, plan and control all activities including the continuing study of market research and customer data.
Moreover, a successful manager should be a good leader who encourages productivity, hires competent people, train them and is able to delegate. He should be strategic in his thinking and should foresee new possibilities for the future.
3. Insufficient Capital
Having insufficient operating funds is a fatal mistake that can lead to business failures. New business owners underestimate how much money is required and have an unrealistic expectation of incoming revenues from sales.
You will have to determine how much money you need to start and to stay in your business.
Location is very important to the success of your business. A good business location will help your business survive whereas a bad location will help in turning it down.
Below are some elements to bear in mind when choosing a business location:
- Place of your customers
- Traffic, accessibility, parking and lighting
- Location of competitors
- Condition and safety of building
- The history, community flavor and receptiveness to a new business at a prospective site
5. Lack of Planning
A successful business results from careful, methodical, strategic planning and hard work.
Many businesses fail because of fundamental weaknesses in their business planning. The business plan should be realistic, based on accurate, current information, and studied projections for the future. It may include:
- Description of the business, vision, goals, and keys to success
- Work force needs
- Potential problems and solutions
- Financial: capital equipment and supply list, balance sheet, income statement and cash flow analysis, sales and expense forecast
- Analysis of competition
- Marketing, advertising and promotional activities
- Budgeting and managing company growth
One of the main reason of business failure is overexpansion. It often occurs when business owners confuse success with how fast they can expand their business.
If you want to expand your business, you have to carefully identify how you want to grow.
7. No Website
According to a recent survey, in the U.S. alone, the number of internet users (approximately 77 percent of the population) and e-commerce sales ($165.4 billion in 2010, according to the US Department of Commerce) continue to rise and are expected to increase with each passing year.
Businesses that do not have a website will not look professional as opposed to those who have. Having an appropriate website will help users to learn easily about your business, your products and services.
Make sure your website makes your business look good.
In conclusion, do not forget that you, the business owner, are the “secret” to your success. You should be armed with drive, determination, and a positive mindset. Most self-made millionaires have average intelligence but what made their success is their openness to knowledge and their willingness to learn whatever it takes to succeed.