The Eight Pitfalls of Business Failure

Dear Reader, you may have come across many statistics indicating "two-thirds of small businesses survive at lease two years, and 44 percent survive at least four years.", 50 percent of businesses fail in the first year and 95 percent fail within five years. Or worse still when the assessment is based on "as a general rule of thumb,"new small businesses have a 50/50 chance of surviving for five years or more."

Business experts have thoroughly searched for reasons of business failures and come up with eight major key seasons of failures, and they are as below:

  1. Starting a business for the wrong season
  2. Poor business management
  3. Poor financial planning
  4. Lack of business planning
  5. Business in the wrong location
  6. Confusing success with expansion
  7. Lack of technology resources
  8. Lack of knowledge of the market forces
1. Start business for the wrong reasons.

If the reason to start a business is based on solely to make money, or to be your own boss, you may have to re-think your reasons again.

I have listed six points below that may help you to build a good reason for your new business:

  • You must have a passion and love for what you will be doing. You may have a strong objectives based on a realistic marketing study, where your product or services would serve the need in the market place.
  • You are physically fit and have stamina to face potential challenges. Stress management is the skill in these days that is more needed than ever before for Business owners and managers.
  • You must have drive, determination, patience and a positive attitude. And most importantly, optimistic.
  • Learn from failures and use these lessons to succeed the next time around. Learning from failure is a good lesson and stayed in our memory. Such learning type called "learning by doing".
  • When Innovation or new solution is needed, it requires your independence, skills, responsibilities and your focus to achieve it. Particularly when you are under great pressure and restricted by time.
  • Your communication skills must be up to date to resist, adjust, interact and get on with all type of people in your business.
2. Poor Business Management

Most research on small businesses failures pointing to the poor management issue. But what are the business management skills required?

Business owners and their management teams should combine the following skills amongst them:

  • Finance,
  • Procurement,
  • Selling,
  • Production or services,
  • Recruiting and managing people.
  • Business analysis
  • SWOT analysis
  • Study, Organise, Plan and Control
  • Constant economical index observation
  • Leadership on strategic thinking
3. Poor Financial Planning

A common mistake for most failed businesses is under estimating the business operation fund before breaking even. The second most known issue is over estimating the sales revenue. The final issue is the cost of staying in business. The latter mostly neglected in planning procedures, as you may know some businesses may take up to five years before starting making profits.

4. Business in the wrong location

Location is a critical factor to all businesses. There are six key issue to look for, and they are illustrated below:

  • Location of your customers, particularly if you are focussing on a specific segment of the market.
  • Vehicle traffic accessibility to your premises with parking and lighting facilities.
  • Knowledge of the location of your competitors and their activities.
  • Condition and safety of building.
  • Knowledge of Local incentive programs for business starters in specific targeted areas.
  • The history, community atmosphere and receptiveness to a new business at a prospective site.
5. Lack of Planning

It is critical for all businesses to have a business plan, how ever small they are. Many small businesses fail because of lack of planning. The second reason of failure, is the mind set of thinking that the business plan is for the bank manger to apply for business loan only.

The planning must have realistic objectives, accurate and most current information. It should include the points below:

  • Description of the business, vision, goals, and keys to success,
  • Work force needed with their specific tasks,
  • Potential problems and solutions options if required,
  • Financial forecast on capital, balance sheet, income statement, cash flow analysis and sales and expense,
  • Analysis of competition and market forces,
  • Marketing, advertising and promotional activities tailored to the business,
  • Budgeting and managing business growth if needed.
6. Confusion between Success and Expansion

Business failures also caused by lack of understanding between business success and business expansion. Business success is when business is meeting its objectives, where customers, employees and owners are satisfied.

Business expansion is when this successful business is been taken to the next stage of growth. Such process of growth, should be well researched and planned to put a system that will meet the new demand, by providing the right staff and the right resources. The system should also be set in a measured pace.

7. Lack of technology resources

If you have a business today, Internet system is a must. The number of sales from internet marketing is increasing daily.

Every business should have a well-designed website that promote their products or services in a professional e-commerce way. Adopting such well professional website design, may generate new revenue from delivery, affiliates and many other services.

Lacking such resources, may lead to losing business to your competitors.

Also adopting technology in administration like accounting and data input, in sales like using electronic till may save you time and money.

8. Lack of knowledge about Outside Forces (Business Environment)

Business owners must keep up to date about their business environment from their local authorities on new and old business legislations, particularly business legislations, licensing, and other legislations that can affect the business directly, or indirectly.

Watch for new, and check old legislations from Central government about small businesses.

Be aware of Bank of England Interest rates, and other financial indices.

Keep yourself updated about your business area demography. Monitor your competitors closely.