Top 7 Reasons Why Business Fail

What is business failure? Why business fail? A business failure is a breakdown of the functioning or performance of any organizational system, process, process or procedure that causes significant financial loss and other non-economic harm to an organization. The term “business failure” has originated from a Greek word for error.

A business failure can be classified in several ways such as operational failure, human resources failure or sales & marketing failure. There are many reasons why businesses fail such as;

lack of adequate resources, poor decisions or bad management, inefficient processes, inaccurate budgeting, etc.

But if you have made an unsuccessful attempt to start a business or run your existing business, you might still consider it a business failure to think about what mistakes you have made along the way.

You may also be wondering whether some types of businesses fail more than others but these statistics will help you decide if you’ve really failed as a businessman or not. These stats show how certain industries are likely to suffer financially when compared to others.

Read on to discover the key information on the statistics behind business failures and how they are affecting companies around the world.

7 Most Common Causes Of A Successful Business…

1. Poor Investment Decisions

When a company fails to make wise investment decisions; things can go into free fall. Many successful organizations have been able to keep their money by investing in products and services they know their customers really need. That’s one reason why so many new startups fail.

Even after starting out with little capital, new entrepreneurs find themselves relying on past investments to finance future endeavors. When this happens, some new businesses find it difficult to get off the ground because there is no cash flow. And so, once a problem like this arises, investors must either close down or try to sell off company assets.

Often times, the former option is better. If a situation does arise such as the case above, then people who did make the right decision can face financial difficulties while those who should have used previous funds now don’t have enough funds due to losses incurred.

So, there is a cost to making the wrong decisions. For instance, if a startup wants to take on a large venture, they may spend all of their savings because they think it’s going to work out better than the original idea.

However, this isn’t always the best strategy, even though they’re confident it will work out. Other times, companies just have no idea what to do and will end up running at losses. This leads to another reason why many companies are failing. After making all their money invested in different ventures, they have nothing left for themselves because if they lose everything, they won’t have a penny to survive.

2. Lack of Resources

As stated before, most new businesses require significant amounts of financial assistance. Without adequate funding, then they cannot grow. It may be hard to explain the importance of having significant funding but it really does pay dividends. More specifically, money is a major factor in creating businesses.

New startups generally don’t have the funds to hire employees, buy equipment, build facilities or invest in marketing campaigns. An entrepreneur or small business owner without sufficient funds is bound to fail.

Just imagine a scenario where you were a struggling entrepreneur, trying to sell items off to raise money all day long and yet you had nothing and your bank account was empty. With that kind of misfortune in mind, you may feel hopeless, knowing full well that there is very little chance you can ever find success without money, which could ultimately result in bankruptcy.

In fact, according to research done in 2015, it is estimated that over 50 percent of startups fail when their founders lack sufficient funding. To make matters worse, the same study also found that half of the companies started without sufficient finances have closed within the first six months of operating.

Another alarming statistic that comes with insufficient financing is that 40 percent of failed companies never return to their initial seed investment. Again, it’s important to remember that these startups didn’t fail; they were lost in the early stages of life when they needed funds desperately.

3. Bad Decision Making

Decision making is the heart and soul of every organization. Whether you’re an owner of a single franchise, part owner of a corporation, manager of an entire department or team, CEO of a professional association, director of a government agency or anyone else, making correct decisions is something we all need to do.

Unfortunately, not everybody will make the right choices, and when this occurs, it results in poor outcomes. Sadly, these unfortunate circumstances are common and the outcome for each is often tragic.

Let’s look at some situations that lead to these poor decision making scenarios.

4. Inconsistent Management

The leader’s ability is the deciding factor in whether his followers are capable or incapable of managing. Leadership abilities are an essential step towards determining whether a business will succeed or if it will be doomed to failure. Leaders cannot let their managers go astray.

Once a leader sets the example to ensure that everyone follows suit, he may feel threatened by someone else’s leadership style. On the other hand, a leader may fear their own followers and want them to follow suit in order to avoid conflict. Therefore, good leaders learn to be flexible and open minded.

As mentioned, bad decisions are sometimes made due to inconsistency within managerial skills. Managers can come off too rigid or distant and as an employee, you probably wouldn’t even notice. But when all of a sudden your manager gets overly personal, seems to treat everyone as his child or treats someone poorly, you might wake up questioning if you were hired for a purpose.

Some managers are afraid of confrontation and would rather do things the slow and traditional way. Others, however, are quick to anger and may resort to violent means in order to vent their anger. All of us are human beings with our weaknesses and strengths, so when we don’t act right, people tend to question we do and what we stand for. This type of self question is extremely harmful when dealing not only with our behavior but also with the credibility of our name.

5. Uncoordinated Work Schedule

Many great leaders and executives, both experienced and new take jobs that keep coming up until we find ourselves working overtime and being asked to leave early. While working extra hours can be beneficial as long as it doesn’t involve being physically sick or injured, it takes away valuable time from work.

Overworking yourself leads to burnout and increases stress. Eventually, someone will have to take care of you, so if you don’t have the energy to work that day, why would you continue doing it? When one person is taking care of another, no matter how busy the task is, they will tend to ignore you. They probably won’t notice how tired you are and won’t care if you take five minutes to eat lunch. Then there is the possibility of someone getting distracted by a call.

Now, if they continue to ignore you until you realize their attention has moved somewhere else, then you are probably spending unnecessary time working to please their boss. If you think this type of scenario was unique to you, you’re mistaken! Companies that have lots of people underperform due to this issue. Sometimes, this issue will involve departments. If you’re tasked with organizing and preparing for staff meetings, then the amount of detail required for each meeting may cause confusion about the schedule overall, especially when the event date changes.

One person may be called to attend that meeting, whereas they were supposed to be a delegate or not know what the subject matter is. In that situation, it can be difficult to meet deadlines and deliver quality work because of a change of circumstance. Your job performance level will be affected if you are assigned the responsibility of arranging events instead of delegating them.

6. Improper Budgeting

A budget is a tool that shows the goals of the whole company, so in order to make this guide successful, everyone involved needs to be on the same page. However, this is not always easy to accomplish. People usually need to agree on specific numbers because sometimes budgets can change drastically and change all at once.

Also, if the company has multiple projects, sometimes all of a sudden some of the tasks change or the person responsible for assigning the project’s budget has to reevaluate the costs associated with one of the larger projects. For instance, there are many instances where budget lines are adjusted as a team or individual. Additionally, budget priorities can change quite frequently.

In addition, the scope of a project could change unexpectedly, which can prove to be challenging if you didn’t prepare for that change in advance. Budget changes can cause problems all for the sake of the budget.

7. No Proper Planning

When companies operate on paper, it gives employees freedom of action, meaning they have greater flexibility. Instead of planning, they will have a blank slate. Furthermore, these days, many people prefer to plan on Excel spreadsheets. This creates unnecessary communication and delays, sometimes resulting in missed deadlines, which in turn affects productivity negatively. Not to mention that most plans can change overnight, requiring frequent updates and reviews.

Planning is a key aspect of developing a positive relationship between senior management and subordinates. Employees feel valued when they know that their input is recognized and their efforts will be rewarded. In terms of business success, proper planning ensures that employees are aware of tasks, deadlines and expected results. Otherwise, they will not be able to complete tasks that are crucial to the bottom line as required. The top management must give its employees reasonable levels of authority, so they’ll need to set up clear expectations and provide guidance to support them.