Why do businesses fail? The easy answer is a weak economy negatively impacts cash flow from smaller businesses which forces them to close.
A weak economy can hurt but I think there is often a little more to it. It’s just an easy excuse for some.
Here are what I believe to be some reasons why businesses fail:
• Lack of a competitive advantage – Too much of the same on offer. Businesses like cleaners, lawn maintenance and personal training are most popular as they require the least upfront cost. Having nothing that makes you different from competitors is like bringing a knife to a gunfight.
• Picked a niche that is too small – Some business owners start a business delivering to a niche market that isn’t large enough. There isn’t enough people to generate required cash flow.
• Breakup of the Founding members – Some partnerships struggle to deal with the high stress levels of running their own business. Disagreements and rifts occur and before they know it, one of the initial partners leave and this leaves a big hole that is sometimes too hard to fill.
• Growing too fast – What goes up must come down. In these cases, necessary planning wasn’t in place and the growth was uncontrolled. Uncontrolled growth meaning businesses having to fund additional investments in assets like machinery, trucks and also working capital like inventory. Having to fund this type of growth can suck up large amounts of cash, forcing businesses into debt they cannot service.
• Failure to control costs – Businesses spend the initial cash before it is flowing in at a positive rate.
• Failure to prepare for uncontrollable costs – E.g. Energy, materials, labour or insurance.
• Business is internally poor – e.g. Customer service, accounting control, theft, fraud.
• Reliance on critical finance/investors that dries up
• Failure to adapt to a changing market – not keeping up with the latest technologies or newest lines of products.
• No Online presence – 99% of businesses these days could benefit from an online presence in one way or another, some don’t want to do so.
Michael is a business advisor that gives real and modern business advice that encourages thinking different and using strategies that are unique. To date, he has given over 4000+ hours of advisory with business owners.
He was awarded the Best Business Enterprise Centre Mentor/Advisor Australia 2014 and also the youngest person to ever receive the award.
He is a regular contributor to many publications including the national 'Inside Small Business Magazine', Business columnist for 'The Western weekender', 'The Village Voice' and more.