A Forbes article on business failure once estimated that more than 50 percent of all small businesses are destined to fail within the first five years of operation, but then entrepreneurs and business owners would want to know how to avoid business failure. As much as this prognostication may be fearsome and discouraging at the same time, new businesses keep opening every day.
So in this article, I want to quickly tell you about the predominant causes of business failure, What exactly is a business failure, how do you elude business failure, and ensure you drive your brand to a safe haven.
The fear of failure is the beginning of not having a business at all and it’s one of the main reasons why people don’t start their own business. Surmounting the courage to start a business takes a lot of time, grit, money, and effort, and failing and retrying. Getting out of business or failing is the last thing that any entrepreneur would want to experience in their lifetime.
Let’s understand some of the major reasons businesses don’t survive the first five years to help you create solutions to avoid business failure and prevent your company from folding up anytime soon.
What is Business Failure?
Business failure simply refers to a business that ceases or shuts down operations following its inability to make a profit or to bring in enough revenue to cover its expenses. A profitable business can fail if it does not generate adequate profit to meet expenses.
There are many factors that may inhibit a business’s growth, causing it to fold up subsequently. These are the reasons for business failure:
- Economic recession,
- Economic depression
- High taxation
- High-interest rates
- Excessive government regulations
- Insufficient Capital
- Lack of experience
- Poor management decisions
- Insufficient marketing
- Inability to compete with the competition
- lack of interest from the public in the business’s offerings.
Best Ways How To Avoid Business Failure
You should note that a business may have good products or services, it may even have consistent customers and still fail due to a number of reasons, some of which have been listed earlier. But before we get to this point, how can we avoid business failure?
Consider the following points when it comes to preventing business failure:
- Create a solid business plan
- Avoid bad debt
- Keep Your Customers Close
- Hire the best fit
- Manage your cash flow
- Always study your competitors
- Take DIY Market Research Seriously
Create a solid Business Plan
As the old saying says, “failure to plan, is to plan to fail”. If you fail to prepare plans ahead and cover all possible grounds before the launch of your business, you might just be heading toward a future crash.
Even though no business owner goes into business planning to fail, many of them usually fail to adequately plan. This is one surefire way of making sure that a business failure is prevented.
Failing to create a business plan is the first mistake that a lot of business owners make.
An ideal business plan shows you a carefully prepared path the business should follow and you’re not just doing trial and error. It also shows ways the business will bring enough funds to sustain it. The good thing is there are many resources online that can help you plan your business before you launch.
Avoid Bad Debt
Before launching your business, this is the best business advice you can get for free, do all you can to avoid bad debt- bad debt is a sum of money that a person or company owes but is not likely to pay back.
When it comes to repaying these debts, the business might be spending all its revenue on repaying debts and loans instead of spending on the needs of the business especially if there’s not much revenue as initially planned. This could also spiral into bankruptcy if left unpaid for too long.
Keep your Customers close
Maintaining good customer service strategy and relations should be the oxygen of every serious business, your customers and clients should be paramount in your focus. Keeping your customers close is one way to build a solid relationship with the people patronizing you, it’s also a way to solidify trust and know how your customers feel about your business, and address the needs of your customers.
Needless to say, all employees at Amazon spend two days every two years working at the company’s customer service desk.
If you achieve this, your customers will continue to patronize your business based on relationships- ensuring revenue keeps flowing into the business.
Keeping and retaining your customer is way smarter and less expensive than trying to acquire new ones.
Hire the best Fit
When you’re starting out, it’s absolutely important that you hire the right people. Now I’m not just talking about people who have a long time of experience, I’m not even talking about certificates, but people who complement your drive and enthusiasm, people who love the job and are not just interested because of the money, people who will be a good fit for your brand.
If the business is still young, ensure you prepare to pay your workers well, don’t treat them like trash, and expect great delivery from them, remember that what you give, you receive.
Likewise, if you’re lucky enough to employ good people, ensure you retain them, empower them and give them the freedom to deliver on their duties.
Manage your Cashflow
Another effective way to avoid business failure is to learn and understand how to handle, manage and supervise your cash flows, and to be honest this is one of the major challenges every business goes through. businesses fail because of poor cash flow which accounts for 82% of small business failures.
If this is left unsupervised, it might just be the beginning of the end for such business. A serious business should be able to manage taxes, cut excesses, know and be able to track how cash comes in and out of the business to the last dime to avoid the possibility of bankruptcy.
Entrepreneurs should take their accounting and bookkeeping very crucial to ensure their finances are in the right direction. As business owners, you can also employ the use of technology to help you manage your business finances.
Study your Competitors
In business, competition keeps us on our toes and helps us to not slack when we have to be up and running. Business owners should take healthy competition as an opportunity to learn and possibly replicate measures to avoid business failure.
You should know that some similar businesses would start before you, at the same time and after you started, every business has its unique experiences, and you can always learn from your competitors’ methods and apply them to improve your business.
Learning from your competitors also helps you to keep innovating in your business, it gives you fresh ideas to grow your business.
Take DIY Market Research Seriously
The mistake that a lot of business owners make is to think people still want to buy their products or services, when in fact people have had enough or even want something different.
The truth is, you can’t really know what your customers want except you carry out market research.
While this seems like something very expensive, there are cheaper ways to make this happen. You can start your market research from your organization, families and friends, neighbors or create a free survey online with tools like SurveyMonkey to get feedback on your products and services.
If you do this, you might just be saving your business the chances to fold up.
What you should know
Business failure is the one thing that a lot of businesses try to avoid, but preventing this is easy if business owners have the foresight to prepare and develop a good strategy before setting up their business.
According to SmallBizTrend, 40 percent of small businesses make a profit, 30 percent break even, and the remaining 30 percent lose money.
Even though over 500,000 businesses open every month, You should know that sole proprietorships are the most common way of starting up a business, it contributes to economic growth and innovation, making up more than 73 percent of all small businesses according to the U.S. Small Business Administration.
In conclusion, starting up a business is one of the most fulfilling things to do but failing in business could also be depressing. If you’re just starting your business, you already launched your business, you should consider all the points we’ve listed above and do your due diligence before getting into it.
You should also remember that failure might just be your first attempt at learning. Overcoming the initial fear is the first step in starting your own business.
If you enjoyed this article, kindly share it on your social media platforms.