Start up businesses have a very high failure rate in this country with as many as 1 in 3 failing in their first three years. The reverse side of the coin is that around two thirds survive and some go on to prosper and expand. Key reasons for business failure include:
Successful modern businesses are ones that understand and meet the requirements of their customers. Detailed market planning and market research is therefore an essential for new businesses, to find out details such as the potential size of the market, the extent of competition, as well as consumer preferences and tastes.
Cash flow problems
Many businesses struggle through poor cash flow management. It is all very well having a good idea and a good product but it is also necessary to be able to meet short term cash outflows. Many businesses try to grow too quickly, and end up borrowing too much money externally, resulting in crippling interest repayment charges.
Poor business planning
Business planning should cover aspects such as marketing, finance, sales and promotional plans, as well as detailed breakdowns of costings and profit predictions. It is often said that ‘failing to plan, is planning to fail’.
Lack of finance
Insufficient finance often means that businesses are unable to take opportunities that are available to them, or have to compromise – going for high cost solutions to problems, rather than lower cost ones that would yield greater competitive advantage.
Failure to embrace new technologies and new developments
In a fast changing world leading businesses are ones that make best use of advanced modern technologies in an appropriate way. Firms that operate with outdated technologies and methods frequently find themselves at a cost disadvantage over more dynamic rivals.
Poor choice of location
Location is a very important business decision. A good location is one that appeals to large numbers of customers, while at the same time minimising costs. For example in retailing it is often a mistake to choose a low cost location, that is not visible to customers. However, conversely there are considerable cost advantages to out-of-town retailers that customers are prepared to travel to visit.
Weak and inexperienced management is one of the major causes of business failure. Managers have to work extremely hard, and to understand their customers needs, and the business that they are in if they are to be successful.
Poor human resource relations
Often a cause of failure. Successful businesses motivate their employees to work hard to help the business to succeed.
Lack of clear objectives
Successful organisations have clearly focused and communicated objectives that enable everyone in the organisation to pull in the same direction.