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10 Reasons Why Businesses Fail

The statistics on new business failures are readily available and alarming, 50% of new businesses fail in the first year whilst over 5 years a staggering 90-95% of businesses fail.

  1. Trying to grow too fast, whilst growth is

    desirable, sustainable controlled measurable growth is preferable to erratic debt laden growth. 


  2. Financial management strategy. For many new businesses financial management is a post sales afterthought. Knowing the investment verses return for your business model and monitoring the score daily, weekly and monthly is vital to playing and staying ahead in the business game.
  3. Overspending: Many new entrepreneurs burn through their start-up capital before their cash flow is positive. This often happens because of misconceptions about how business operates. If you’re just starting out, seek out seasoned veterans you can turn to for advice before making big expenditures.   
  4. Lack of operating cash flow: Be prepared for unexpected increases in your operating costs like utilities, materials, and labour. Make sure you keep adequate cash flow to carry you through tough times and seasonal slowdowns.
  5. Poor choice of location: Don’t let either a cheap lease or an expensive lease tempt you into choosing the wrong location. Consider competition (how many similar businesses are located nearby?) and accessibility (is the area well served by freeways, public transportation, and foot traffic?). Will the expected turnover reach your rent to turnover KPI?
  6. Poor execution: Poor customer service and overall employee incompetence will quickly sink your business. Make sure your employees place a premium on customer service. Develop systems and processes for how tasks should be accomplished, and create internal and external controls to monitor them.
  7. An inadequate business plan: A well thought-out business plan forces you to think about the future and the challenges you’ll face. It also forces you to consider your financial needs, your marketing and management plans, your competition, and your overall strategy.
  8. Failing to change with the times: The ability to recognize opportunities and be flexible enough to adapt is crucial to surviving and thriving. Learn how to wear multiple hats, respond nimbly, and develop new areas of expertise.
  9. Ineffective marketing: Customers can’t do business with you if they don’t know you’re there. Advertising is expensive, spend wisely and promote your business through online marketing, social media, email, local search, and more measurable mediums.
  10. Underestimating the competition: Customer loyalty doesn’t just happen — you have to earn it. Watch your competition and stay one step ahead of them. If you don’t take care of your customers, your competition will.


July 20 2013


Francesca Webster

Francesca Webster