Top Causes of Why New Businesses Fail
When Starting a Gift Basket Business, Learn the Top
Reasons Why Businesses Fail
If you're a small business
and will be applying for a business loan, these steps
need to be taken to place you in the best possible
position for obtaining a business loan.
Top Reasons Why a New Business or Home
Business Will Fail
- Choosing a business that isn't very profitable.
Even though you generate lots of activity, the
profits never materialize to the extent necessary to
sustain an on-going company.
- Inadequate cash reserves. If you don't have
enough cash to carry you through the first six
months or so before the business starts making
money, your prospects for Success are not good.
Consider both business and personal living expenses
when determining how much cash you will need.
- Failure to clearly define and understand your
market, your customers, and your customers' buying
Who are your customers? You should be able to
clearly identify them in one or two sentences.
How are you going to reach them?
Is your product or service seasonal?
What will you do in the off-season?
How loyal are your potential customers to their
Do customers keep coming back or do they just
purchase from you one time?
Does it take a long time to close a sale or are your
customers more driven by impulse buying?
- Failure to price your product or service
correctly. You must clearly define your pricing
strategy. You can be the cheapest or you can be the
best, but if you try to do both, you'll fail.
- Failure to adequately anticipate cash flow. When
you are just starting out, suppliers require quick
payment for inventory (usually COD). If you sell
your products on credit, the time between making the
sale and getting paid can be months. This two-way
tug at your cash can pull you down if you fail to
plan for it.
- Failure to anticipate or react to competition,
technology, or other changes in the marketplace.
It's dangerous to assume that what you've done in
the past will always work. Challenge the factors
that led to your Success. Do you still do things the
same way despite new market demands and changing
times? What is your competition doing differently?
What new technology is available? Be open to new
ideas. Experiment. Those who fail to do this end up
becoming pawns to those who do.
- Over-generalization. Trying to do everything for
everyone is a sure road to ruin. Spreading yourself
too thin diminishes quality. The market pays
excellent rewards for excellent results, average
rewards for average results, and below average
rewards for below average results.
- Over-dependence on a single customer. At first,
it looks great. But then you realize you are at
their mercy. Whenever you have one customer so big
that losing them would mean closing up shop, watch
out. Having a large base of small customers is much
- Uncontrolled growth. Slow and steady wins every
time. Dependable, predictable growth is vastly
superior to spurts and jumps in volume. It's hard to
believe that too much business can destroy you, but
the textbooks are full of case studies. Going after
all the business you can get drains your cash and
actually reduces overall profitability. You may
incur significant up-front costs to finance large
inventories to meet new customer demand. Don't
leverage yourself so far that if the economy
stumbles, you'll be unable to pay back your loans.
When you go after it all, you usually become less
selective about customers and products, both of
which drain profits from your company.
- Believing you can do everything yourself. One of
the biggest challenges for entrepreneurs is to let
go. Let go of the attitude that you must have
hands-on control of all aspects of your business.
Let go of the belief that only you can make
decisions. Concentrate on the most important
problems or issues facing your company. Let others