7 Reasons Companies Fail – Are you making any of them?

by Monika Beck | Featured Contributor

More new businesses fail than succeed. Every industry is different. Some of the specific reasons a San Diego divorce attorney fails might be different to the reasons a Palm Springs alarm company fails. However, there are a few dangers that any business might face one day.

Here are seven common reasons that businesses fail.


1. Lack of funds

Insufficient funding can harm businesses in many different ways. If you can’t buy new inventory while waiting for payment on things you’ve sold, you can no longer trade. Unpredictable events and accidents can cause a crisis. Every business needs adequate capital to thrive. Even growing businesses can struggle with lack of capital.

2. Not understanding the competition

Every business has competitors. The most successful businesses keep an eye on their marketplace. They know what the latest trends are. They have a good idea of where things will be in 12 months, 5 years and 10 years time. They don’t follow their competitors but instead stay one step ahead of them. Businesses don’t understand their competition will always be at a disadvantage.

3. Growing too quickly

While all successful businesses grow and change, growing too quickly can be dangerous. Businesses that get too big too fast may lack the infrastructure to operate on a higher level. Slow and steady growth is the most stable path to success.

A fast growing business amplifies the mistakes you make.

4. Lack of marketing

Marketing is vital for any business. When times are hard and customers are few, marketing becomes even more important. This is why businesses should invest in marketing when they have the funds available. Good times can quickly turn bad if a business doesn’t have new customers coming in.

5. Lack of leadership

Every business requires similar leadership qualities. Business leaders need to have a vision and a plan for executing it. They need to trust their employees and delegate properly. Businesses which micromanage everything their staff does can make staff feel undervalued. They’re also wasting resources. The most successful business hire great people and then give them the space and tools to do their job.

6. A poor business model

Every business needs to make money. This sounds obvious, but many businesses fail because their business model isn’t profitable. A slim profit margin can be destroyed when things go wrong. The slightest downturn in business can be a disaster for a company operating on the edge. Businesses need a long-term strategy for making money in good times and bad.

7. Lack of planning

Failing to plan is planning to fail. Even if you don’t have a formal business plan, you still must carefully plan ahead. Successful entrepreneurs make plans regarding financing, competition, pricing, sales and marketing, and capital.

Some industries have legal planning obligations. For example, many property businesses must use a reserve study company to ensure they can cover repairs and maintenance. But planning to cover essential costs is just one aspect of planning. Businesses also need to think about how things might change in the future and how they could adapt. Every step a business takes should be part of a plan for success.

These seven mistakes are common to all industries. Every business can learn from the successes and failures of others. Copy what works and avoid what doesn’t.

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