Business failure is not something that any business owner thinks of when starting a new business. But to succeed you need the ability to tackle obstacles in business.
While there are several businesses in a broad range of industries that are performing well and earn profits. According, to a study by Small Business Administration, 20% of business fails in their first year.
To safeguard your new business, it is necessary to understand what leads a business towards failure and how to handle each obstacle.
The common reasons most businesses fail are lack of finance, inadequate management of team, faulty infrastructure, or marketing strategy.
Lack of Finance
The primary reason that leads to the failure of any business is the lack of capital. In most cases, the business owner is unaware of the total finance needed to run the business daily.
The daily capital required included payroll, fixed & overhead expenses, and ensuring that vendors are paid on time. On the other hand, many owners are unaware of the total revenue generated by sales or marketing.
The second reason is marking the price for products or services. In the competitive world, companies price much lower prices to entice new customers. The companies mostly fail due to keeping prices low for too long time.
When the price of production, marketing, sales, and delivery outweigh the price from sales of products or services, businesses have no other choice than to close down.
Poor Management
The common reason other than finance is lack of business awareness on the part of the management team or business owner. In many companies, the business owner is the only senior level person to handle all other tasks, especially during the first two years.
The business owner may have the skill to sell his product or services, but they lack the quality of managing other tasks. Without the proper team, a business owner can mismanage certain aspects of business such as finance, hiring, or marketing.
Smart owners outsource the activities they do not perform well or have little time to successfully manage it. A strong management team is a key to continue smooth operations in the future.
Ineffective Business Plan
Business owners often fail to build a business plan needed to open new doors for their business. A business plan needs to include –
- Description About business
- Current and Future management of employees
- Opportunities and threats of market
- Financial needs
- Competitors analysis
A business owner who starts a business without a proper business plan is taking a high risk. Businesses need to adapt to changes in the market to compete in the market.
Before starting the business, owners must have a solid report about their competitors, market survey, and understanding of their industry. Business planning is key to a successful business in the long term.
Marketing Plans
A business owner often neglects to prepare a marketing plan to sell their product or services. The owners fail to prepare a marketing plan for the things including- finance for marketing campaigns, conversion ratio, and prospect reach.
It can be hard to divert capital from another department towards the marketing campaign, as marketing is the key element for the business at the early stage. It is important to establish a realistic budget for a marketing campaign to ensure no shortfall.
Conclusion
When it comes to the success of any business- business owners are ultimately the secret behind the success. For many business owners, failure was never an option.
With great business planning, positive mind-set, many business owners kept learning and grow their businesses.
What sets business owners apart is their willingness to learn new things and keep working till they succeed.
