Why do Businesses Fail?
And what you can do to prevent it

Businesses fail for all kinds of reasons, from being in the wrong location for the business type to not having a unique selling point (USP).

This post explores some of the reasons why businesses fail and what you can do to prevent it from happening to your business.

1. Starting a business for the wrong reason

Most advice starts along the lines of "start a business doing something you love" or the alternative work doing something you love, and youll never work a day, but this advice isnt always as good as it sounds.

What if your business idea isn't profitable? Or what if you fall out of love with your hobby but now feel you must keep going to make ends meet? What you have to consider when you are starting a business is that you have to not only like what you're doing but you also have to be able to make money off it.

To help gauge whether you can make money off your business idea, the first step you should take is conducting market research. Your market research should focus not only on what consumers would be willing to pay for your product but also on whether they like your product and would be willing to buy it from you rather than a competitor.

If your market research is positive, you can reach out to other businesses in the area to see if they have any advice to offer you. What do they wish they had known before starting their business? Or whats one piece of advice they could offer to their younger selves?
Not all businesses are willing to speak in such a candid way as this, especially if they view you as a competitor. But if you can find a business willing to share with you, you could find it an invaluable resource.

2. Poor Management

Why would poor management mean the failure of a business? Primarily, this is because new business owners lack key experience.

Thats not to say they dont have experience in their field of expertise; more of theyre lacking in other areas, such as finance, purchasing, selling and advertising. Lack of managerial support can be the downfall of any business, especially new businesses that dont have the staff in place to fill these gaps in knowledge and experience.

When youre starting out, you might find it hard to hire employees to take on this workload for you, so until that can happen, it can be worth investing in courses to further your own knowledge. There are free and paid-for courses available that focus on effectively running a business and increasing profits, so its worth taking a look at.

3. Insufficient Capital

Insufficient capital can affect new businesses in two ways:

1. Initial investment required to start the business
2. The money needed to keep running month after month

As a new business owner who has potentially started the business based on a hobby youre passionate about, are you sure you can make enough sales based on your passion alone? You need to be making enough sales not only to keep the business running but also enough so that you can make a profit and potentially be able to take a wage.

Overcoming this can mean going back to basics and making sure your budget and financial forecasting are complete and accurate. If youre new to business, there are a few things you might not have thought about including in these, such as production costs, premises rent, business rates, and the cost of living.

4. Starting in the wrong location

If you run a business that only sells online, this might not apply as much to you as it would for someone starting a physical business. However, it can still apply to where you sell online. Are you using an online marketplace full of customers interested in what youre selling, or are you hoping that interested customers are going to stumble upon your website?

However, if youre selling in a physical location, you still need to be aware of where your premises are. If youre selling a high-end item, you probably wont have many customers if youre based in an area thats not affluent.

5. Over Expansion

Some business owners confuse success with how quickly they can expand. When this happens, businesses can quickly fail.

Expansion isnt just about the number of physical locations the business has, but also their product line and the number of employees they have.

If you expand your product line too quickly, you have to consider whether you can keep up with orders or whether you would need to take on additional staff to keep up with demand. Then, if you do need to hire additional staff, are you making enough sales of the new product to justify hiring them, or are you making a loss every month?

Every time you think about expanding the business, you must ensure that youre looking at every angle possible and only taking the plunge if everything points toward success.

This blog post highlights some of the mistakes that can be made during expansion and what you can do to avoid them.

6. No Website

This isn't going to be the case for all businesses, but most will find that a lack of a website could have caused them to fail.

Its no longer just the case that your business will fail if people arent buying from your website, but its now one of the biggest ways you can advertise your business and entice new customers to shop with you.

7. Not having a clear USP

A business' Unique Selling Point (USP) is what sets them apart from their competitors, whether it's the fact that they offer the same product but in a wider range of colours or whether they have a different way of working. A USP can be used to attract customers to a business and should be made public and advertised.

Some businesses don't know what their USP is, which is why they can fail; if a business is no different from its competitors, then why will customers choose the one over the other? Business owners need to think about what makes them different and advertise that fact.

8. Relying on a small number of customers

Have you ever thought about how the number of customers you have has an effect on how you operate the business?

Some small businesses can get by happily with less than ten clients, but what happens if one of these clients stops buying or closes its doors?

Sometimes it can be better having a hundred small clients than relying on two big ones that bring in the majority of your income.

It's the same as the old adage "Don't put all of your eggs in one basket." Spread your business out and market to a range of different client types and market areas.

9. Pricing Failure

Some businesses are out of touch with the market standard on pricing their products, leading to a price thats either too high or too low rather than just right.

If your pricing is too high, you can turn away clients that can find a competitor that offers the same product for a cheaper price. However, if your price is too low, customers can start to question the quality of the product and whether its being produced ethically.

To overcome this, keep an eye on the market around your business and set your prices accordingly for the quality of the product youre selling.

10. Not seeking help

All business owners need help from time to time, whether they don't understand how to run accounts or because theyre unsure about procedures and policies that need to be in place. If a business owner doesn't seek help, this can seriously harm the business. It could be because the policy needed was a legal requirement or because their tax wasn't calculated correctly. This can lead to serious problems with the business.

Remember, everyone needs help from time to time, business owners can't afford to think that they know best or that they know everything.

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