Why do so many businesses fail

[businessfunding]

It is an unavoidable fact that businesses go bust because they run out of money.

However, in the majority of cases the solution is not to throw more cash at it (be that your own cash or investor/loan cash) - which is just like blowing up a tyre with a puncture.

It might sound obvious, but in the majority of insolvencies the business owners believe that all they need is some more cash for the next 3 months. Without taking the correct actions, the business will just go bust 3 months later and deeper in debt.

 

[Philip Hoyle]

It's not just lack of cash, it's wastefulness and simply not realising how much they're spending and where the cash is going. Lots of small amounts quickly add up to make big amounts. That's why good book-keeping habits are important from day 1. There's nothing like looking back for the past few weeks/months and drilling down to seeing all the small immaterial amounts building up into big figures, to focus the mind on cost control. A key skill to being a business has to be to learn the difference between necessary spending and frivolous "vanity" spending. You have to maximise spending on goods/services that will bring in business and profit. Cash is a scarce resource so it has to be managed wisely with the best return.

 

[Tej]

Cash is King
One must know the costs... you cannot work out a selling price without knowing this.
Finally

" Spend not where you may save
Save not where you must spend"

 

[raineshoe]

1 - Running a business
To begin with you need to gain a good understanding of how a business should be run. I advise getting some business management qualifications that equip you with a wide range of skills. This will increase the chances of your business surviving its first few years.

Not absolutely necessary to have business management qualificaitons as I have only O'level English and the rest are all CSE's of grade 3 or 4. I have taken my business from nothing to now having to go VAT registered with a decent turnover and profit.

Its been done with shear hard work, and yes some mistakes along the way. I think though a lot of people think its all going to fall in their lap and it doesn't without putting the effort behind it. You only have to look at how many people go on forums asking where to get this and that from wholesalers instead of doing the leg work themselves. If they can't be bothered to do the basics they'll fall as soon as the going gets tough.

 

[Blood Lust]

Not absolutely necessary to have business management qualificaitons as I have only O'level English and the rest are all CSE's of grade 3 or 4. I have taken my business from nothing to now having to go VAT registered with a decent turnover and profit.

Its been done with shear hard work, and yes some mistakes along the way. I think though a lot of people think its all going to fall in their lap and it doesn't without putting the effort behind it. You only have to look at how many people go on forums asking where to get this and that from wholesalers instead of doing the leg work themselves. If they can't be bothered to do the basics they'll fall as soon as the going gets tough.

We have to think about what its like for most people. Yes success can happen with no training in business management but you yourself admit to mistakes along the way.

While business management qualfications are no guarentee there will be no mistakes the amount that do happen will be vastly reduced. Having them means a higher probability of making it through the first couple of years without going bust.

 

[Small Biz Jessica]

What a great thread! And I agree with so much of what everyone's said. In particular:

Poor Credit Control/Debt Recovery processes/procedures

It's dull, but keeping tidy paperwork can be really business-critical. Once you start losing control of who you've billed and who you haven't, and what you've received and what you haven't, you're on a totally slipperly slope. And that's before we even mention keeping enough records for HRMC.

I am watching a guy who has just started in a shop similar to one i had last year ,he is selling stuff too cheap

This colleague reckoned on £10.00 an hour being good for his self employed service, but couldn't see when I and the lecturer both pointed out that it wasn't £10.00 an hour once you took out your expenses. No amount of explaining could make him understand that.

And I really agree with both of these, people often price themselves much too low, either because it can be hard to place a high enough value on yourself and what you're offering, and/or because they don't understand all the costs involved.

Because many new startups treat their business as simply a job, whether it be e.g a cleaner, electrician, plumber, web designer or others. They focus mainly on the technical elements of the product or service they provide, but don't fully consider all the other essential activities: research, marketing, sales, finance, etc.

Yeah, we often start working for ourselves in order to do something we love, without realising we'll need to be experts at running every aspect of a business too!

I recall something I heard many years ago ................
Working for yourself is easy, any fool can do it.
Getting PAID for it is the clever bit.

I'm SO loving that one!

 

[Homshaw]

We hung on by a thread in our first year, in fact we are still in the recovery process there were two reasons only it was difficult. The recession obviously, less to go at - no body pays in construction during a recession. Secondly, the HMRC and their CIS scheme. this has to be the worst run operation in the UK - its a joke, existing on a totally rubbish scheme which is run by an even more totally rubbish and inept organisation is the bottom of the bottom most pit.

This lot (I am convinced) are set up to squeeze small business into the ground not to help them grow.

Yes if you can't get on top of the red tape you can get into serious problems that ruin your life let alone your business

It isn't easy for small businesses many of the requirements are highly technical and expensive to comply with

 

[Homshaw]

This is getting so depressing I'm thinking of retiring

 

[Small Biz Jessica]

This is getting so depressing I'm thinking of retiring

Actually made me laugh. I know that you mean.

A lot of my friends seem to think that working for myself means I hardly have to do anything all week, and I get to take holidays whenever I like. But it's such incredibly bl***dy hard work. No wonder my dentist says I'm grinding my teeth...

 

[Philip Hoyle]

It's dull, but keeping tidy paperwork can be really business-critical. Once you start losing control of who you've billed and who you haven't, and what you've received and what you haven't, you're on a totally slipperly slope. And that's before we even mention keeping enough records for HRMC.

Absolutely spot on. Reminded me of a client a couple of years ago. I was preparing their accounts and noticed they hadn't invoiced for £6.5k of sales! Client couldn't believe they'd missed it and initially didn't believe me. Result was one very happy client!! I could have easily not noticed it - it was only because the annual accounts didn't look right that I delved deeper and found it.

Same happened many years ago when I was doing the accounts of a motor dealership. Used car stocks and margins didn't look right so I checked over their records and found four used cars sold to another dealer which were never paid for. The sales manager was on holiday that week when the dealer came and took the cars away and none of the others remembered to tell the manager nor the sales dept that they'd been sold. Result was a nice big cheque from the other dealer - he'd been sitting on the money hoping that it was never noticed!

I wonder how much more money is left uncollected due to administrative foul ups? It just shows the importance of good systems.

 

[Homshaw]

Absolutely spot on. Reminded me of a client a couple of years ago. I was preparing their accounts and noticed they hadn't invoiced for £6.5k of sales!

Must have too much money

 

[kzandco]

this thread has provoked some serious debate and it is interesting to hear everyone's opinion it is a bigger issue then i thought at first, i will weigh in with my two pence tomorrow

 

[kzandco]

after reading the posts it seems that the biggest problems are planning, control of finances and lack of knowledge. So if thats the case why dont enough businesses invest into services that help, I understand it costs money but if the person can help then they will generate that money back wont it?

 

[ThePublisher]

after reading the posts it seems that the biggest problems are planning, control of finances and lack of knowledge. So if thats the case why dont enough businesses invest into services that help, I understand it costs money but if the person can help then they will generate that money back wont it?

Most people who don't make that sort of investment don't do it because they don't know they need to.

 

[kzandco]

so lack of marketing on my side?

 

[jay82]

25 Top Reasons Why Businesses Fail

1. Fear—Whether it is the fear of success or the fear of failure, fear of stepping out of one’s comfort zone to try something new, or the fear of trial and error. Fear can freeze a person dead in his or her tracks.

2. Failure to plan.

3. Lack of funding.

4. Procrastination

5. Excuses. Especially making an excuse for any and everything that causes you to stumble.

6. Doing busy work. Keeping busy doing unimportant tasks.

7. Inability to delegate tasks. Sometimes delegation saves your business. If you have a weakness, hire someone who could turn that weakness into a strength. Use others to complete simple time consuming tasks so that you can do other things.

8. Failure to Research.

9. Failure to Market.

10. An inconsistent advertising campaign. It is better to have a ton of small ads on a regular basis than one large ad on a monthly or yearly basis.

11. Your pricing is too low, thus resulting in a negative cash flow.

12. Bad accounting practices.

13. Choosing quantity over quality. Cutting corners is bad business sense.

14. Dishonesty.

15. Not fixing mistakes.

16. Not completing tasks in a timely manner.

17. Inability to follow-up. You should always follow-up by email, snail mail, or phone.

18. Not listening to client or customer. Talking too much.

19. Spending too little. It takes money to make money.

20. Spending too much. Purchasing items when you don’t need them, upgrading when the older version will do, letting suppliers talk you into things you cannot afford, and not budgeting.

21. Being unprepared for fluctuations in business. Boom times when demands are high as well as slow times when you are struggling to get by. (Put money away during boom times to prepare for slow times.)

22. Lack of diversification. If you only offer one product or service, losing it can destroy your business.

23. Reputation. While a good reputation will gain you tons of business, a bad reputation could close your business.

24. Cockiness. There is nothing wrong with feeling great about your products, services, or accomplishments. Just don’t let pride and arrogance destroy your customer relations.

25. Discouragement. Giving in to your feelings of discouragement, when things do not work out the way you planned or succeed as fast as you thought. Also allowing others to feed on any discouragement you may already feel.

 

[kulture]

Good list. I would expand on 22 Lack of diversification.

It is not just one product that can kill you, it is over reliance on one supplier. A few years ago when the main DVD wholesaler went bust, it took several well known retailers with it as they could no longer get DVDs. Likewise we are seeing the potential death throws of a business on this forum by depending on Amazon as a major source of their income and they are potentially about to be screw*d by Amazon.

 

[kzandco]

Good list. I would expand on 22 Lack of diversification.

It is not just one product that can kill you, it is over reliance on one supplier. A few years ago when the main DVD wholesaler went bust, it took several well known retailers with it as they could no longer get DVDs. Likewise we are seeing the potential death throws of a business on this forum by depending on Amazon as a major source of their income and they are potentially about to be screw*d by Amazon.

I just been on your website just out of curiosity how comes you don't sell any MMA or Wrestling action figures on your website?

 

[jay82]

Good list. I would expand on 22 Lack of diversification.

It is not just one product that can kill you, it is over reliance on one supplier. A few years ago when the main DVD wholesaler went bust, it took several well known retailers with it as they could no longer get DVDs. Likewise we are seeing the potential death throws of a business on this forum by depending on Amazon as a major source of their income and they are potentially about to be screw*d by Amazon.

Thats a wise input. you are looking at the situation from a different angle.very true. Its is significant to have variety in your business, so that if one part fails, you can fucntion on a spare till you can come up with an alternative Today you see many market leaders of particular products such as pepsi ,etc have also diversified their services, products and supply channels. they are integrating new alternatives so that their dependency reduces .

 

[kzandco]

adaptation is one of the keys to survival in business thats what the amazons, pepsis and apples have done so well lately

 

[kzandco]

a lot of views on this i guess their are many reasons why businesses fail but i guess lack of education is one of the main ones

 

[leemason]

Luck and timing also play their part. I worked for a startup company in the early 90's. It was a great business with some really great people but it started just as the economy was taking a nose dive. I guess it could be argued that the owners could have done something different to prevent the failure but at another time it would have worked really well.

Sometimes things completely outside of your control can have a drastic effect, like Tesco deciding to open up a "Metro" store next door to your shop, or your main supplier "rationalising" their supply change and cutting out smaller companies (again happened to a company that I used to work for).

 

[jay82]

Even Apple diversified from iphones to ipods and laptops. Whereas pepsi now sells mineral water and some juices as well its about keeping up with competition, being "IN" with the latest trends in the market, creating your own versions for it and manufacturing as well as supplying them better than your competitor does

 

[Busso]

Luck and timing also play their part. I worked for a startup company in the early 90's. It was a great business with some really great people but it started just as the economy was taking a nose dive. I guess it could be argued that the owners could have done something different to prevent the failure but at another time it would have worked really well.

Sometimes things completely outside of your control can have a drastic effect, like Tesco deciding to open up a "Metro" store next door to your shop, or your main supplier "rationalising" their supply change and cutting out smaller companies (again happened to a company that I used to work for).

There's a Tesco opening near us will almost certainly claim at least 2 victims and possibly 3 in the long term. They're taking over an old pub as they dont need to apply for a change of use. Our group of shops work really well together but were all just surviving in this climate, so this is a headache we could all do without.

In a square mile area around us there are 5 convenience stores plus a bakery, 2 off licences and a sweet shop. We do not need a 6th convenience store! But good old Tesco will make 2 or 3 of these go out of business so thats ok isn't it

 

[A7788]

adaptation is one of the keys to survival in business thats what the amazons, pepsis and apples have done so well lately

Indeed - in the business I'm in currently we saw all our loan provider customers change to debt recovery services companies as soon as the recession started. All about adapting to survive.

 

[kzandco]

its simple you dont change then you die thats it

Indeed - in the business I'm in currently we saw all our loan provider customers change to debt recovery services companies as soon as the recession started. All about adapting to survive.