Business Article - Why Businesses Fail
Every year, many businesses fail to make a profit and end up in a position where bankruptcy or closure is needed. Startup costs and increasing debt are usually far greater than any initial profit, but there are numerous other reasons. Attempting to save a business when prospects become bad usually result in more debt and very little extended time before the company fails to remain functioning. Understanding the reasons why businesses, especially small ones, tend to fail is imperative to a company wishing for success, and will indicate which areas to watch over the most.
Jumping in too Fast
Many businesses are started by someone who is either tired of working for someone else, or who has a dream of owning a business. Enthusiasm, while needed to endure the hardships that are sure to follow, often results in the 'jumping too fast' syndrome most new businesses experience. Quitting your day job spontaneously is the worst decision someone can make. Profits from a new business should never be expected. Startup debt will far outweigh any money made, and render totally monthly profits into the negative. This results in the inability to maintain employees and pay bills in the both your business and personal life. Stress will begin to set in and likely drive the owner to more sources of debt, such as bank loans, account overdrafts, or angel capital.The key is to continue working a day job where pay is steady and expected. Determine the costs of your business monthly, and begin saving for those costs. Its usually assumed that a business will not begin making a profit in the first twelve months. After that, the profit is generally not enough to sustain the business bills, but enough to make debt payments. When planning the business savings, it usually best to have one year of expenses set aside before continuing. This amount may seem large, and likely will be, but the amount of stress it will relieve will prevent the owner from burning out. This money will guarantee that there is always a set enough to pay the monthly bills, and prevent defaulting in payments. Finally, it will allow for more savings to be generated while the business is in its startup.
Lack of Marketing
Marketing and sales go together; one rarely happens without the other. A successful business draws in new customers daily, and has a loyal base of customers who purchase the services regularly. Failing to attract these new customers will result in very little or no profits. Lack of profits is always the reason for a business having to close.Having a dedicated marketing team is good, but knowing how to market for your specific business is better. For example, will a website be useful for you? If you are a national or international company, than a website will be essential. If you sell a product and it has a market beyond your local establishment, a website will also be necessary. However, for a local business such as a coffee shop or diner, a website is useless. Local customers are more likely to discover your business via billboards, bumper stickers, t-shirts, newspaper ads, and free promotions in magazines. Directed and sensible marketing is key when attracting the largest amount of customers possible at the cheapest rate.
Burning Out
Starting and maintaining a business is stressful. Money issues including debt-to-profit ratio and time investment are nearly always skewed drastically from what was expected, and from what could be earned at a normal day job. After a few months of little profit and increasing bills, many owners begin to wonder if it is worth the hassle. Wouldn't it be better to just go back to the old nine to five and be happy again? Not always.There is a time to accept that the business is simply destined to failure, and there is a time to continue working at it, even if its difficult and time consuming. A year is generally needed before any profit is generated. Quitting after four or six months is usually premature. Are there any indications, aside from lack of profit, that the business is going to fail? If not, the end result will be well worth the current stress. Ending a business early usually accomplishes nothing more than making the owner feel like a failure.
Lack of Community
Starting a business can be lonely. Few understand what is involved in the process, and how stressful it can be. In addition, most startup businesses have few or no employees. Devoting most of the working day to an empty business can be mind numbing. Spending weeks at the same job with no one to talk to and pass the time with will drive many back to their day job.Networking and finding a group of like minded individuals who are involved in their own startups can be useful for not only passing time, but also for seeking feedback on ideas or finding out info about potential sources of finance clients.
Working for Profit only
There are many reasons that new businesses are started. For some, they hate having a standard day job and a boss to report to. For others, they are so passionate about a particular subject or area that they wish to start a business entirely their own. Finally, there are some who start businesses solely on the desire to become rich.Starting a business will the intention of making millions is worst reason. Most business do not begin earning a profit for their first year, and most do not offset startup debt for several more. Lacking passion for the company makes it nearly impossible to endure the hardships and stress that is so often a reality for new owners. Once it becomes clear that a fast and easy profit is not going to happen, most owners close their business and never give it a chance to thrive.
Lack of Education
Business education does not involve a degree, though that would certainly help. There are many aspects to running a business, including finance, employee management, licenses, and taxes. It is very important to learn as much as possible about all aspects of business, both local and broad. Local ordinances, codes, and requirements vary by city and time. Likewise, national requirements for businesses are also implemented. A business license is usually needed, as well as registering the business.Beyond the requirements above, its also important to learn the functioning and 'lingo' of a business. Failing to understand the different means of finance available, as well as the way venture capital, shares, and deductions work will result in loss profit, time, and resources.
Failure to Recognize Reality
Idealistic and exciting ideas by new business owners are nearly always damaging. Envisioning live entertainment, future bookings, marketing fairs, odd-yet-cute decorations, etc. are all premature and costly. Monthly expenses should be kept as low as possible for as long as needed. Spending extra resources on items that serve no other purpose than uniqueness is a waste that often ends up costly. Once the business is generating profit and has some proven statistics for steady sales and successful marketing, extras can be implemented carefully without worry about severe consequences.
Nothing Unique
Why should a prospective customers purchase your product, eat at your establishment, or commission your services? What do you offer that the business down the street doesn't? If your business is no different from everyone nearby, you'll lose customers to the place they are familiar with. Most customers do not like experimenting with a new service when they've found a consistent one they favor. If you fail to give them a reason for trying your services, profits will be low and spontaneous.Unique does not have to mean eccentric, however. Unusual money packages, weekly specials, preferred customer benefits, etc. are all unique aspects to your company that others may not possess. Before deciding on a unique angle, visit nearby competing businesses and find out what makes them unique.
Too Many Bills
A new bill is due and your are feeling desperate. There was nearly no income this month, and using the money from savings again is not appealing. What's the solution? For most, it's going into more debt. Opening a new credit card, requesting a higher overdraft limit, or another loan are all ways to sink quickly into debt. Most have a disillusionment about their future debt-to-profit ratio. Too many business owners assume that profit will skyrocket in the near future and paying off the debt will be simple. As time goes on, the bills eventually become too large to pay, and the company enters a state of bankruptcy.Businesses fail for many reasons, and most have to do with lack of planning and knowledge. Spontaneously jumping into a business based on an idea or passion with little thought to finances is a sure way to fail. Lack of savings usually results in large amounts of debt that cannot be paid back monthly, and can force an otherwise successful business into bankruptcy. Understanding that time and preparation are both necessary and rewarding is key to running a successful, long term company.