REASONS FOR BUSINESS FAILURES

 

 

There are no more than one or two reasons for business failures.   There are many.   The factors below give some selected reasons which lead to business failures:

 

POOR ATTITUDE

Owner loses interest, is not motivated.

 

 POOR RELATIONSHIPS

Owner develops poor relationships with staff, suppliers, bankers, customers and does not get their full co-operation and relationships

 

POOR OR NO BUSINESS PLANNING

Not planning ahead to establish future income, expenses, resource requirements (staff, equipment, funds required)

 

POOR FINANCIAL CONTROL

Not giving serious attention and control to business expenses.   Giving too high a credit to customers.   Not collecting debts on time.   All this leads to not having enough money for day to day running costs and purchasing items for business.    Not understanding ongoing financial position so that measures can be taken if required.

 

POOR RECORDS

Not having suitable records for all business transactions.  This prevents business managers from making good business decisions.

 

POOR STOCK CONTROL

No proper stock records of what was received and what was sold and what is still in stock.   Also, holding more stock in business than can be sold results in money being tied up unnecessarily.   Excess stock can also deteriorate or become old and out of date.

 

POOR CREDIT CONTROL

This includes not making creditors fill in proper credit forms with rules and conditions for non-payment, on time etc.   Not specifying to customers the credit limit they can have.   Giving credit to wrong people or unknown persons.   And not ensuring that people pay accounts on time etc

 

POOR MARKETING

Not planning marketing strategies and implementing  marketing objectrives properly, resulting in ineffective advertising, selling and distributing of goods and services.

 

POOR STAFF CONTROL

Leaving everything to staff  without any control or overall surveillance.   Employing more than enough staff or employing untrained or unsuitable staff.

 

POOR TIME MANAGEMENT

Spending time excessively in some selected areas only at the expense of other areas that get neglected and give rise to major problems.

 

POOR KNOWLEDGE OF BUSINESS ENVIRONMENT

Not looking for changes in the business environment which present threats and opportunities to the business.   Not responding to threats which may ultimately cause business failure.    Not accepting opportunities which will allow the business to thrive.   Failing to identify your target market due to poor market research.   Failing to adapt your product to meet customer needs and wants.

 

POOR EXPERIENCE

Not knowing enough about the industry in which one operates.   Not knowing about buying, selling, interacting with customers, controlling and handling money etc.

 

POOR STOCK OF TECHNOLOGY

Using outdated technology can hinder your business progress and effect your business competitive.

 

POOR LOCATION

The location of the business is not close to transport links or customer bases.

 

POOR PRODUCT OR SERVICE

The product or service being offered is not in demand and hence does not sell or i9s not bringing you enough return.   The quality of product or service being sold is not of the top grade and hence people do not buy.

POOR CASH CONTROL

Profits are seen as made up as made up in cash and the owner uses this cash too fast leaving the business with not enough funds to pay taxes and suppliers.

 

POOR PRICING OF GOODS

Not setting profitable prices for the products or services offered.   The prices set are below the right margins and result in nearly breakeven gains or just losses.  

 

LACK OF INTERNAL CONTROLS

Lack of internal controls in the business e.g. controls over cash, security, controls over employees, checks of stock levels to reveal pilferage etc.

 

LACK OF DIVERSIFICATION

A significant exposure to one market or product which fails, one customer and loses order, one suppler and that supplier does not supply any more..

 

THE BIG ORDER

Big orders can land the business in trouble for at least three reasons:  

You can become too dependent on one major customer.  

  You can over-extend yourself quite easily and this can wreck your cashflow.   Suddenly you need extra staff, more machines, but it could be months before you get any return.   In the meantime you still have to pay wages and bills  

Itís easy to get so involved in fulfilling a big contract that you neglect and lose your smaller customers.   And when the big customer decides to order from someone else next time, where does that leave your business?    

 

EXCUSES, EXCUSES

Managers who always have an excuse for problems and are not facing up to the situation and doing something about it, e.g.  

Lack of working capital  

Bank will not lend me more  

Competitor is trying to ruin me  

 I can not compete with the big competitor  

The Government  

The general economic situation  

 

FAILURE TO COMPLY WITH REGULATIONS

Failure to comply with tax , other government, local body regulations.

  

FAILURE TO TAKE PROFESSIONAL ADVICE

Failure to take professional advice when required, or ignoring professional advice that is given.  

 

TAKING UNNECESSARY RISKS

Poor decisionmaking and taking unecessary risks.

   

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