Many aspiring entrepreneurs want to start their own businesses. As we go through this pandemic, we find even more people interested in developing a sustainable stream of income for themselves. If freelancers can expand their client base, they can also turn the services they offer into a full-fledged business.
But did you know that every business initiative does not necessarily become successful? Many undergo business failure, while others struggle for months until they start making a profit. Some businesses start off well but soon run out of cash flow or face other operational problems.
There are many reasons for business failure in this highly competitive world. If you are aware of these reasons, you will be better positioned to avoid business failure, should you also happen to start a new business.
In this post, we will discuss why businesses fail and give suggestions on how to avoid business failure.
5 Most Common Reasons for Business Failure
Here are the 5 most common causes of business failure in the globalized and digitalized world that we are living in today.
1. Poor Cash Flow Management
Cash flow is like the lifeblood for a business. You must have heard the phrase ‘cash is king’. This phrase applies to businesses as much as it does to our personal lives. Poor cash management can be so detrimental to business operations that it might cause the demise of a company. Sometimes even a profitable organization can undergo business failure due to a cash flow crisis. This is usually the result of ineffective handling of debtors, too high or too low stock levels, late invoicing, and bad debt.
Poor cash flow management and subsequent business failure can also be caused by inadequate or unreliable funding sources. Without having access to a sufficient capital budget, your business will not have the fuel it needs for its growth.
2. Losing Financial Control
The second on our list of reasons for business failure is losing control of the finances. A business owner at all times must be aware of the organization’s finances. Accurate sales forecasting and proper accounting can minimize the risks of business failure. But companies that, instead of focusing on these, are involved in employing inexperienced staff and using outdated accounting solutions face bigger burdens in terms of financial management.
When a company has good control over its finances and uses good quality, cloud-based accounting solutions, it can avoid business failure to a great extent. These tactics combined with effective marketing strategies often become the road to many business ventures worldwide.
3. Lack of Effective Strategies
Companies that fail to plan and formulate effective marketing strategies often incur business failure. Long-term planning is crucial to the success of a business. When you map out the growth and expansion of your company, you need to do it in line with thorough market research to make more informed decisions. If you do not have the right strategy in place, you will end up steering your business operations in the wrong direction.
You must also keep an eye on the other players in the industry by conducting a competitive analysis regularly. We have many examples of businesses that did not keep up with the pace of market trends when things changed in the world due to the coronavirus pandemic. These businesses could not sustain their revenue and growth, as they failed to adapt quickly to the new policies and consumer mindset. So many brick-and-mortar retailers had to close down their businesses. There are lessons for us to learn in every example of business failure.
4. Weak Leadership
A good leader recognizes the skills thay lack but need to run the business operations. They know who to hire, what to outsource, and where to seek professional advice or business consulting services. They like to communicate with and reward their high-performing employees for keeping them motivated to continue working well.
Businesses with poor leadership from the business owner or top management create a demotivated and dull environment within the company, which leads to a crippled business at first and eventually to business failure.
5. Dependence on a Few Good Customers
Taking care of your existing customers is a good thing and frequently brings many benefits. But ignore large pools of your target audience that have not yet converted into your customers. Overdependence on a few big customers makes companies lose many opportunities for growing a business. Such organizations usually miss out on market gaps that they can fill by not paying attention to product line extension and diversification opportunities.
If you have only a few good customers and one of them pulls out, you will be on the verge of business failure. Your profit and cash flow will be deeply impacted, and it will become difficult for your company to sustain. You need to keep striving for new customer acquisition to minimize this risk. You should also encourage your customers to sign agreements with a reasonable notice period clause. Do not be too scared to diversify your product portfolio. Test around new product ideas in the market. Move on with whatever suits your revenue the most.
Image taken from Strikingly
4 Ways to Avoid Business Failure
Here are 4 ways or tactics you can use to minimize the risks mentioned above and avoid business failure.
1. Create a Solid Business Plan
Before starting a business, you must have a clearly drafted business plan. This plan should include how you plan to get financing to start your operations, allocate your resources, and where you see your business in the next five years. This might sound a bit overwhelming, but not preparing a business plan from the beginning will make your initiative susceptible to business failure.
One of the things that are part of building a solid business plan is writing your mission statement. Your mission statement must define your primary business goals and tell the audience the purpose of your company’s existence.
Providing good customer service can help you avoid business failure. This is because when your customers are happy, they will recommend your brand and store to their friends and peers. This will bring in more business for your company, as more people start considering making purchases from you without even seeing a paid advert.
If you are running your business online, you can offer good customer service and support by creating a live chat feature on your website.
Another way to avoid business failure is to keep an eye on your competitors and other elements in your external environment. Compare your pricing strategies with those of your competitors. Develop ad campaigns that are more appealing to the audience than your competitors. Give reasons to your target customers to choose you over other brands. Build a brand personality that makes you stand out from the competition. Examine your competitors’ marketing campaigns, and build better campaigns than theirs. Come up with relatable marketing messages to convey to your target customers.
4. Build and Maintain a Professional Website
Having a professional website to showcase your business is critical for surviving in the competitive market we have to operate in these days. Don’t think too hard about this. Simply register for a free account on Strikingly, select a suitable website template, and get started with building your user-friendly, highly responsive, and easy-to-update website. This will greatly reduce your chances of business failure. It will also provide your customers and target audience a one-stop platform to find information about your business.
Image taken from Strikingly
Nobody can guarantee the success of a business. Most anyone can take all the steps and measures that will minimize the risks of business failure. The measures mentioned above can greatly reduce your chances of failing at your business initiatives if carried out carefully. These are practical steps that will direct you towards well-informed decision-making and creative, strategic planning, both of which can boost the growth of your organization.
In particular, having an appealing and professionally built website shows that your business has a solid online presence, even if it is on the verge of failing in the physical world. We highly recommend you to create your website on your own, using a feature-rich and quality website builder. This way, you will save the costs you would otherwise have to pay to a web developer and enjoy complete authority on your site. You will have the freedom to edit your site content any time you like.
At Strikingly, we like to provide our users an awesome experience of building and maintaining their website on our platform. We update our tools and features regularly to ensure that we are not losing out in the competitive website-building marketplace.