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Why do most businesses fail and how do I stop mine from failing?
Statistically, many businesses fail in their first 5 years. They fail for common reasons and new business owners should be aware of what those reasons are:
- Cash flow: In every business, CASH FLOW IS KING!!!
- I am too busy to deal with it now: Procrastination is one of the most common reasons why businesses fail. Business owners tend to put things on the back burner, thinking that they will find the time to deal with the matter later. However, putting invoices from your suppliers on the back burner will result in catastrophe and will also result in severe cash flow depletion, which may overwhelm your business.
- Blinkers: You have your own ideas about your business. Forget them. Look for every opportunity to encourage customers to buy from you. Don’t be snooty. If a tramp walks into your premisses and has the funds to purchase what you are selling, then serve him with a smile on your face. His money is every bit as good as anyone else’s. Even if his image is not to your taste. Money is money..
- Customer Complacency: Having built up a loyal customer base, you get chummy with them and think that you have a captive market. In business, there are only customers and suppliers. To maintain your customer base and to convert them into loyal customers, you must work very hard. You must work harder to keep them. Unfortunately, there are no such things as friends in business.
- Competition Complacency: Even if you have the best service or product offering, never underestimate your competition. Whilst you are basking in your success, they are plotting and conniving to find ways of chipping away at your business. Time is on their side. Keep one eye on your competition. They are fighting for their survival as well. Remember, a wounded animal is a dangerous animal. Customers are notoriously fickle when it comes to parting with their hard earned cash.
- Bad employees: Have you ever been to a super-store and found inattentive or poorly trained staff? Staff who’s main priority is to earn a salary are of no practical value to you or your business. Enthusiastic and well trained staff are your ambassadors and are a direct reflection of your business.
- Flexibility: Irrespective of the type of business you run, be flexible. If you own a coffee shop and only serve cappuccino, don’t turn away the customer who wants a frappé coffee, because it is not on your menu. The successful business person, will look at the needs of their customers and adapt accordingly.
- Location, location, location: Location is everything. There is little point having a 5 Michelin star restaurant in the middle of an industrial manufacturing estate. The likelihood is you will only attract the directors of the companies around you. Ensure you locate your business in an area where it has a reasonable chance of attracting as many willing customers as possible,
- Bad Planning: Start with a good business plan and make sure it is water-tight. Ensure that your business plan clearly defines your route to achieving your goals.
- Over expansion: Many business owners confuse success as being tied inexorably to expansion. Learn to walk before you try to run. By trying to grow too fast, you can just as easily bust apart at the seams.
- No Website: If you do not have a website, it is unlikely that your business will become known in your community. What is worse, if you do not promote your website, it is the same as not having one.
- Putting all your business eggs in one basket: Practice risk mitigation or assume if anything can go wrong, it will. Hedging all your bets in one direction, does not leave you any place to turn, if things go wrong. Having one product or service will leave you vulnerable. Having one large customer, ties your fortunes to the ups and downs of your customer.
- Insufficient funding: Starting a business with insufficient funding is like taking wine from a poisoned chalice. If starting a business is right today, then it will still be right in a month or two. The delay, may allow you sufficient time to arrange better funding for your new business venture, to arrange third party investment or other form of funding, such as a loan or mortgage. You need to have sufficient funding to last six months, whilst you get your business operational.
- Entrepreneurial Stubbornness: Sometimes entrepreneurs get an idea in their head and never let it go. This can lead to entrepreneurial burnout. Be flexible, if it ain’t broke, don’t fix it. However, if it isn’t working for you, then find the reasons why and do fix it. Talk to anyone who can take an objective look.