Top 3 Reasons Businesses Fail

Maintaining a small business is not easy in the fast-paced world today. Most small businesses fail to see a real profit, or are closed abruptly within the first five years. Over the span of the subsequent five years, a chunk of the survivors from the previous 5 years also close their doors.

What are the top 3 reasons that cause a business to fail?

The reasons generally lie in three main areas. Those areas are usually personal, client, and operations.

The Personal area deals with the personal motivations to start a business for the new business owner. For example, if an owner wants to start their own business, but isn’t willing to make the necessary sacrifices to help it thrive, then they are at a disadvantage if compared to other motivated business people. When a business starts operating for the first time, it often doesn’t have a lot of capital. Owners are required to sacrifice time, money, and happiness to succeed. When the new business owner is unable or unwilling to do what it takes to make it through these difficult years, then the chances that such a business will flourish are dramatically reduced. Many owners thought they could handle the natural stress of starting a new small business, but once the reality of “being your own boss” becomes increasingly apparent, they often have few other options but to close the doors.

The Client area is generally considered the most important components of any business. Without clients there are no sales, without sales there is no money, and without money there is no longer a business. There are several methods to growing a reliable client base. (View my previous post here: 5 Proven Methods to Help Grow a Client Base)

It is critical to have a cost effective marketing strategy that targets  potential clients. This important step is usually done by carefully developing a psychological profile of your client and then advertising in the places that they are likely to visit frequently. It is more costly to obtain a new client than it is to keep an existing one, you must make sure your clients are satisfied with your business services and products. (View my previous post here: 4 Client Retention Strategies).  Businesses fail by failing to attract paying clients in a cost effective way. Though you may have a product or service that potential clients are willing to pay for, but you can’t  market it in a cost-effective way, than you most likely don’t have a sustainable business strategy.

The Operations area is only second to the Client area. Business operations require appropriate methods of reducing costs, keeping track of paperwork, and continuously seeking methods for improvement. I have seen to many small business owners that fall into the trap of thinking that they know everything. This is where the idea of building business systems comes in to play. All successful businesses use systems to control and grow operations. If the business owner is unwilling to learn every day, or is unwilling to build a solid team that is allowed the freedom to perform their duties and learn from success as well as failure, then the chances of long-term success are very slim. Business efficiency is a critical metric that will affect all businesses at some point in time, so taking a proactive viewpoint about it is critical in this fast-paced era.

Probably the biggest hitter to business failure in the Operations area is lack of cash flow. When a small business runs out of cash, then the opportunity for the business to fail rises to almost certainty. Business management is no easy undertaking, but is a critical component of the successful business. Failure to consider the ebbs and flows of cash, where it is coming in from and going out to, will lead to disaster.

If the previously mentioned components are strategically thought out, and are appropriately designed for the unique small business, then it greatly increases the chances of survival. Failure to comprehend the integral details of your business while continuously striving to learn what it takes to succeed in the future could very well lead to failure in the long run.

If you are experiencing difficulty in putting all the pieces together, then consider hiring a small business consultant like myself to help you put the right systems in place that will increase the chances that your business will survive.