20 Common Causes Of Business Failure

The reality is that no business is guaranteed to succeed. There are many factors that contribute to the success or failure of a company, and there’s never one simple answer as to what causes an organization to fail. The following points will help you identify some of the common reasons for business failure:

1. Lack of planning

A lack of planning can result in problems later on which will endanger the future of the company. Business plans should be regularly updated, to identify what has gone well and what needs improvement.

2. Bad location

It may seem obvious, but a bad location for your business could make it practically impossible to make money! You need to research where your customers are likely to go – e.g if you are selling ice cream then you want to think about setting up close to a beach or park. Also, check out competitors – are they set up nearby? If so, this might be an indication that there is already strong competition in the area and it’s not worth setting up shop there.

3. Under-capitalization

Under-capitalization is when a company doesn’t have enough money to survive. This may be due to the business having higher than expected costs, or simply not bringing in enough money for the business to continue.

4. Inadequate staff and facilities

Lack of staff and assets (such as computers and tools) can result in a lack of productivity. If your business only has one or two employees, this could be disastrous if one is off sick or on holiday for any length of time. You should aim to have enough support so that 20 percent of the workforce is willing to go on strike without seriously crippling the company!

If you don’t have sufficient office supplies then you may find that clients are unable to contact your business, resulting in missed opportunities and bad publicity.

5. Unfortunate timing or economic conditions

Believe it or not, businesses can go bankrupt simply because the economy is going through a rough patch! For example, if you were to set up a restaurant in 2010 and the economy was already struggling then this could be enough to put people off eating out.

6. Underestimating the competition   

This may seem obvious, but you need to think about what your competitors are doing and see if they pose a threat to you. You can do this by looking at their marketing strategies and prices. If the competition is too great then it may be worth considering whether or not your business could thrive elsewhere!

7 . Failure to follow through on a good idea (or not having one in the first place)

It’s essential to have a good idea of where your business is going and what you want to achieve. There must be a specific plan in place, and ongoing research into the marketplace will ensure that everything goes how it should.

8. Poor management and leadership skills, especially among family members who are running the company together  

If you’re not willing to put in the time and effort, then it’s unlikely that your business will go far. Of course, this is especially important if there are people involved who aren’t related – you need to be sure that employees respect and trust the owner(s). If you don’t have a good working relationship with those around you then your employees will be less productive and it’s unlikely that you’ll get very far in the business.

9 . Wrong business model for that particular industry or lack of innovation in product or service offerings 

Lack of variety or creativity will make it difficult for customers to remain loyal to your company. It will be tougher to convince customers that what you have is the best way forward, and this can seriously harm a business’s reputation.  

10 . Lack of marketing knowledge, experience, and execution 

It’s important to know where your customers are likely to be, and how you can make potential customers aware of your business. You may need to build relationships with partners who’ll help you with this process (such as TV adverts). If you don’t know what you’re doing then it’s not going to work – no matter the product or service.

11 . Not being able to meet customer needs  or demands

If you have a good product or service but can’t meet your customers’ needs then you’ll find that they look elsewhere. It’s worth setting up a system to ensure that this doesn’t happen.

12 . Ignoring key trends impacting their market segment 

It’s important to stay up-to-date with what your competitors (and other businesses in your industry) are doing. You should aim to innovate and find new ways to bring customers on board.

13. Failing to solve customer problems 

In order to build a successful business, you need to solve the problems of your customers. In fact, this is one of the best ways in which you can differentiate yourself from others who offer similar products or services. If there’s no reason for your customers to choose your company over another then they’ll simply go elsewhere.

14. Failing to deliver quality products at fair prices  

It’s essential to keep your customers happy, and to do this you need to offer quality products at fair prices. If there are any problems with the product, then you should be ready to help in order to retain customer loyalty. You could even put together an efficient product warranty system which will give your customers peace of mind.  

15. Being too rigid about pricing policies 

Pricing is a difficult process, especially if you have direct competitors. It’s important to stay competitive, but this may mean that your prices must be flexible. You might also need to think about lower pricing options for bulk orders or loyalty programs – it all depends on the industry that you’re in.

16. Losing touch with customers  

It’s important for companies to know their customers on a more personal level. If they can put a face to the transaction then it makes them more likely to place an order with you and recommend your company to others. This is especially important in the retail and hospitality industries.

17. Ignoring social media marketing and other online platforms to reach customers.

This is a growing trend that businesses should consider. Even if your company doesn’t have online sales as one of its main sources of revenue, you still need to understand and appreciate what your customers want and how they want to be marketed to.

18. Too many products/services offered at one time (over-saturation)

You need to clearly identify your target market. If you try to be everything for everyone then it will negatively impact the performance of each product or service that you offer. Focus on what works and slowly expand if necessary.  

19. No succession plan in place for when the owner retires or passes away 

This may seem morbid to some, but it’s an important thing to consider. It will not only ensure that the company you have spent your life building has a future, but also that employees and customers are secured in their roles or positions.

20. Disagreements Among Owners/Partners  

This is a common cause of business failure, and it’s often down to the personal relationships of the owner. If you don’t get on with your partners or employees, then you need to find out why in order to rectify the problem.

If you’re looking to start a business, it’s important that you do your research and have an understanding of what causes businesses to fail. While the 20 causes of business failure we’ve listed are just a few, it is important to note that they all have one thing in common. They were not prepared for when things went wrong. There are many ways you can prevent these pitfalls before they happen but being proactive and thinking outside the box will always provide you with more options than reacting after something happens. Make sure your business has an emergency plan so if anything goes wrong, you’ll be ready!


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