Pearls of wisdom why businesses fail?

[Rob Holmes]

(Coming from a question raised on another thread) I thought it would be a good idea if people could share pearls of wisdom on the reasons why their business failed or what they did to stop them failing and on reflection how they would stop it happening ...

I'll share a couple of thoughts to get the ball rolling..

1. Staying real - it's dead easy to fool yourself or as a board 'discuss the business' into a good place when actually it just isn't.

2. Lack of funding - again it seems all too easy to 'create a business' nowadays.. £35 for a Ltd co name, £30 for a years web hosting, £5 for a domain name and 3 hours on a pc and technically you have a business. In reality I would not start a business without some serious cash in the bank, enough to cover things and grow the business in the early days.

Rob

 

[SuffolkDesigns]

Lack of planning
Lack of funding
Bad management

 

[cubzworld]

Have to agree with you totally on the lack of funding side. When we set up our travel agency 3 years ago - looking back we were totally green. We had to borrow to keep a float until the business took off.

Also lack of research - we wasted a lot of money in different advertising area before we found out what really worked for us. We should have done a lot more anaylsis & 'thinking' before plunging in.

We were fortunate (touch wood) that we found the key in time but I can see how if we hadn't we would have been another statistic.

 

[Breaker]

Lack of experience ... seems obvious, but if I'd had any experience in the areas in which I now opperate, I would have saved myself time and money. Just knowing when to negotiate, when to cut your losses, and when to pay full price because it's worth it....

 

[Gillie]

Lack of funding, or rather being realistic as to what you actually do need when you start up ... and facing up to it!

Bad management as in getting too involved to see where the cash is escaping from so therefore fighting fires, instead of stepping back and seeing where the fault is!

 

Everything that everyone's mentioned so far, plus poor marketing.

 

[RapidBI]

From my experience (6+years in Business Link) The following are key reasons why business fail:
1) poor cashflow projections/ management
2) not knowing breakeven point
3) underestimating how long it takes to get the business established (it takes 3* longer then you expect)
4) inadequate market research
5) listening to the wrong customers (those that are vocal rather than those that spend)
6) deviation from the vision
7) lack of vision in the first place
8) lack of a good business advisor (& I mean more than an accountant)
9) poor cash management - spending on the wrong things
10) poor or innappropriate planning

 

[coultog]

Hi everyone,

For someone who's got a full time job and works on an internet business on an evening this is extremely insightful. I hope to move away from the internet and into the real world of selling soon...

I'm interested on the cash flow angle... Whilst theoretically I know this is the case, I have only just started to realise how important it is... We started our business something along the lines of what was stated above... I had a domain name, downloaded OSCommerce, negotiated a contract and then was good to go. As the business has grown (from our £225 initial investment each) we have got into situations where we have personally bailed out the business. Sometimes we've bailed it out for a lot of money (in terms of the businesses size).

Interesting... I'm definitely going to have some more thoughts on this over the coming hours...

Thanks

 

[bwglaw]

Failure to get appropriate insurance to cover legal expenses, as well as failure to get employers liability insurance. Believe it or not, companies go bust after costly litigation

I had a business before I had any knowledge of law and the business dwindled and I then went onto University to study law etc and now operate a successful business and my knowledge/experience has made the company stronger

 

[10Yetis]

Coming up a great business but not giving enough thought to routes to market... i.e. how you will get sales and thinking people will just appear.

 

[Gillie]

Not asking for help ....

 

[Zest4.biz]

Inadequate market research into the reality of the source of business clients. We see lots of businesses who have never done a day's research but 'know' there is a need.

Initial feedback from our telemarketing on the first day tells them their target market is not interested. The good ones grow from the experience and target properly, the bad ones go under.

Inadequate cash flow linked to poor sales and high expectations that the business will feed them whilst they do nothing +

 

[Cornish Steve]

The #1 reason why companies fail is cash flow. A company might be profitable and have a lot of great customers, yet it can fail because of a lack of cash. This calls for careful monitoring of finances on a daily basis.

 

[Graham Iceberg]

Nice thread Rob,

If you read my profile, you'll see I got past the initial 'dangerous' period in a very roundabout way - without financial backing.

Well, I was keen to keep overheads down - but it was a mistake - it slowed me down. Had i taken help from a bank, I could have (for my business in particular) invested in OWNING assets that instead I rented on project to project basis - I had the businesses signed off, but didn't have the initiative to go to the banks.

I would say it has slowed me by 12 - 20 of the 40 months I have been operating. That's the difference in not seeking financial backing against confirmed business. Stupid of me, but that's the way it goes !

2) Please do everything to find out your overheads - they are always larger and more hidden than you think. It's tempting to put a lid on them, but bring them out, account for them in your costings, because the only way you can maximise your profit is to know your overheads really well.

 

[DarrenH]

All of the aforementioned...plus...

Lack of passion.

passion for what you do will pull you through the tough times, and there will be tough times.

It really surprises me how many people start so called business opportunities with the sole aim of making money. Don't get me wrong, we all want to make money, but unless you're passionate about your business, industry, whatever the phrasing you like, you won't put the necessary energy into your ventures.

Darren

 

[Rob Holmes]

Maybe being passionate about making sure your customers have the best service and products you can possible provide too.

Rob

 

[DarrenH]

Hi

I think in most cases, if you're passionate about your business, the customer service aspect will be a natural follow through.

I certainly know it is in what I do, even though I'm not as passionate about DJing as I used to be, the customers still come first.

Darren

 

[Cornish Steve]

One thing that's important to us is our mission statement. We weigh every decision and every potential new opportunity against that mission statement: if it's consistent, all well and good; if it's not consistent, why are we doing it? Our mission statement gives us a strong sense of direction.

 

[Marketingmind]

One important aspect of running any business is marketing.

You can have the best product or service in the world but if no one knows about you then you will never make any sales.

Also the majority of businesses are sitting on a huge wad of cash that they never take advantage of - your mailing list. Getting back in contact with customer who have already bought from you is highly effective. After all these are the people who have already bought from you once before.

Getting good at marketing and taking advantage of all these different business generating ideas are essential for any business if they want to make large profits.

Best Wishes

J

"Helping Your Grow Your Business"

 

[Adman]

Cash flow.

Or more specifically finding customers that will pay on time. I know a lot of businesses that have failed because customers have paid late, in some cases very late. I would always say if you can't be sure they will pay just walk away. And big companies are the worst - banks, and supermarkets - you'll probably remember the haulier last year that had to blocade some Tesco distribution centres to get his money off them, basically they don't give a toss, they use suppliers as free banking.

'... a bird in the hand ...etc, etc..'

Adman

 

[Write My Site]

Everything already mentioned, plus: failure to analyse the intended market in an objective way. E.g. the Car Doctor bloke on Dragons Den the other week, who didn't seem to understand that the market had no need for his service.

In other words, not having a very good business idea to begin with !

 

[JustOneUK]

I would say my first business failed as I was on the golf course all day and in the casino all night. [at least I can laugh about it]

Staying focused AND motivated are critical.
Set some targets that are achievable so you do not get distracted or de-motivated. Remember to pat yourself on the back.

James.

 

The moment you believe you have succeeded, is the moment you fail.

 

[Write My Site]

The moment you believe you have succeeded, is the moment you fail.

That's a bit pessimistic!

 

not really, the idea is that you drive on and never give up

 

[Peter Jolley]

Can't believe no one has mentioned these three things.

1. Failing to contiuoulsy improve.
2. Not keeping an eye on your competitors.
3. Contingency Plans - fire, flood, act of god etc...

 

[franco_24]

From my experience (6+years in Business Link) The following are key reasons why business fail:
1) poor cashflow projections/ management
2) not knowing breakeven point
3) underestimating how long it takes to get the business established (it takes 3* longer then you expect)
4) inadequate market research
5) listening to the wrong customers (those that are vocal rather than those that spend)
6) deviation from the vision
7) lack of vision in the first place
8) lack of a good business advisor (& I mean more than an accountant)
9) poor cash management - spending on the wrong things
10) poor or innappropriate planning

Excellent and sound advice. The franchise section of the forum could do with your input too. Well done - blazingly accurate.

 

[Hayles]

Can't believe no one has mentioned these three things.

1. Failing to contiuoulsy improve.
2. Not keeping an eye on your competitors.
3. Contingency Plans - fire, flood, act of god etc...

Had to come in here on your point 3 Peter.

Around 60 small businesses were recently destroyed in a major fire on our business estate. It's been an awful time, made so much worse for the many businesses involved that weren't insured - or weren't insured properly. Some of the larger businesses (with full insurance no doubt) are already up and running from different premises (the fire was early July). Others are gone, completely wiped out in one night.

We've learnt alot from other people's misfortune lately and No.3 on the list is definitely worth serious consideration as you just never know.

Apart from this, I think spending time getting to know every part of the business and accounts is important so you're aware of any problems as soon as they appear on the distant horizon!

Hayles