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Top 7 Reasons Businesses Fail

Although every business is started with optimism and hope, the reality is creating a profitable, successful business is tough. Statistically, 30% of businesses fail in the first year, and 70% within 10 years.  

For business owners to give themselves the best chance of succeeding, they firstly need to understand the key reasons businesses fail. Then secondly, they need to take action and make changes to ensure those failure factors have been eliminated from their business.

The top 7 reasons businesses fail are:

  1. Insufficient capital – typically the budgeted revenue is over-estimated, and the expenses under estimated. Unless extra capital is available, the business will fail.
  2. Poor management and leadership – many business owners are technicians with no management skills. How long and how many mistakes will be made before they build up their management and leadership skills?
  3. Failure to deliver real value – Too many new businesses are just copycats of thousands of other established businesses. What differentiates the new business from the competition and what real value is provided to customers?
  4. Starting a business for the wrong reason – too many businesses are started by technicians who want to ditch the boss and work for themselves or want to work less hours in a stress-free environment.
  5. Expanding too quickly – confusing sales with profitability is a common mistake with new business owners. They are often so happy to have customers and expanding sales, they forget the importance of profitability and cashflow.
  6. Poor business model – too many businesses are started with business models that are just not viable or profitable. The numbers don’t stack up, and never will.
  7. Inability to control business and personal expenses – excess spending is the grim reaper of new businesses. Too many business owners think the business cashflow is their personal piggy bank.
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