Why Businesses Fail?

The main reasons why businesses fail are:

1. poor business planning
2. poor financial planning
3. poor marketing
4. poor management.

Leadership is about planning for success before it happens. The Art of War, gave some sound advice that still applies to business today: "When your strategy is deep and far-reaching, then what you gain by your calculations is much, so you can win before you even fight. When your strategic thinking is shallow and near-sighted, when what you gain by your calculations is little, so you lose before you do battle.’

In the financial planning category, 82% of businesses failed due to poor cash flow management skills, followed closely by starting out with too little money. Business leadership is about taking financial responsibility, conducting sound financial planning and research, and understanding the unique financial dynamics of one’s business. Half of the UK’s small businesses fail within the first three years because of cash flow problems. They either run out of money or run out of time. Consumer debt, personal bankruptcies, and company insolvencies are all now on the increase.

The third business failure factor profiled in the study, and a critical one, was marketing. Over 64% of the businesses surveyed in the marketing category failed because their owners ignored the importance of properly promoting their business, and then ignored their competition. Again, as a business leader, you must be able to effectively communicate your idea to the right people and understand their unique needs and wants. Leadership is all about taking initiative, taking action, getting things done, and making decisions. If you are not doing anything of significance to market and promote your business, you are most likely headed for business failure.

You must also know your competition.Leadership is about providing value to customers; if your main competitors are all providing a better quality and lower priced product, how can you possibly create any value? Either you harness your strengths to provide different benefits (such as speed, convenience, or better service), lower your price and improve quality, create a different product for an unmet demand, or get out of the game.

Finally, one of the most important reasons why businesses fail is due to poor management. In the management category, 70% of businesses failed due to owners not recognising their failings and not seeking help, followed by insufficient relevant business experience. Not delegating properly and hiring the wrong people were additional major contributing factors to business failure in this category.



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TO AVOID FAILURE, as a leader of the organisation:

1. You must have a strategy.
2. You must have controls.
3. The Board must participate.
4. You must avoid one-man-rule.
5. There must be management in depth.
6. Keep informed of, and react to, change.
7. The customer is king.
8. Do not misuse computers.
9. Do not manipulate your accounts.
10. Organise to meet employees’ needs.



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