Below is an excerpt from course:
Excerpt from Lesson 1
REASONS FOR FAILURE
It is no secret that the rate of failure for small business can be an alarming number, especially for those looking to start a business. There are many reasons why businesses fail. Planning is your best defense against business failure. Lesson 2 is devoted entirely to business planning.
Some common reasons business fail are listed below.
Reasons for Failure
- Poor cash flow management
- Growing too quickly
- Owner made wrong choice for business
- Insufficient market demand
- Inadequate business planning
- Inadequate management
- Lack of experience
- Insufficient start-up capital
- Poor location
- Poor inventory management
- Poor quality of product of service
- Changes in economy or industry
- Poor credit arrangements
- Mismanagement of business funds
- Increased competition
- Failure to monitor market trends
- Low sales
- Small customer base- relying on too few customers
- No cost control
- Business owner thinking they can do it without getting help
Growing Too Quickly
One reason a business may fail that may shock people is if the business is growing too quickly. Generally people think it is great if the business is growing at a rapid pace. That means a lot of sales, high revenues, and inventory is jumping off the shelf. The business is booming. Not necessarily. Predictable growth is usually better than irregular bursts of growth. Growing too quickly may lead to some challenges for the business owner. For instance, you spend a lot of cash to acquire new, large inventories, and then wait for customers to buy it. Or you may have to purchase new equipment in order to produce enough to cover the new growth levels. By tying up your money and sales not being generated as expected, you can find yourself in a serious cash flow situation. Growth is good. You just have to learn how to manage it correctly. How to effectively manage business growth is covered further in Lesson 14.
Insufficient Start-Up Capital
Another common reason businesses fail is insufficient start-up capital. You need to have enough money to carry you through the start-up phase. You also need to have money for your personal living expenses as well. Experts recommend that you should have at least 3 to 6 months saved in reserves for expenses. Note that it is important to estimate your business sales and expenses. However, know that your actual sales are often less than you estimate when you start out. We will explore start-up capital and financial projections in more detail in Lessons 6 and 10.
Inadequate Business Planning
Some people like to skip the planning process, thinking that they can handle situations as they come and it takes too long to do the work. However, inadequate business planning is a leading cause of business failure. Those that plan will still face challenges. However, by planning, you are better prepared to see the pitfalls before they arrive and can have a plan of action to manage it. Planning does not give you the silver bullet to success, but the lack of planning will quickly lead you to failure. An in depth look at business planning is included in Lesson 2.
Now that we know there are reasons businesses fail, let’s look at ways to prevent it from happening to you.
Ways to Get Help
There is help available to increase your chances of success. Surround yourself with successful entrepreneurs. You can learn a tremendous amount from those who have been there. Another way is to work for someone else who owns a business like the one you would like to start. You get the added benefit of earning a paycheck while learning how the business operates. Network with other business owners in the same or similar industry so you can learn more about your industry. Join the trade association for your industry. There is a trade association for every industry. Hire a business coach or mentor to guide and support you through the process. Take courses like this one. Access the free services from federal, state, or local governments. Local non-profit organizations focusing on small business provide assistance. Search the internet for resources. Local colleges offer courses on topics of interest to business owners. There is help all around you. Take advantageof it. Your success depends on it.