Top 10 Reason Businesses Fail – NY TIMES-
There are many ins and out to starting a business, as well as uncontrollable variables that may affect the productivity of a business. None the less here is a list of 10 simple reason that often time new businesses fail.
1. The math just doesn’t work. There is not enough demand for the product or service at a price that will produce a profit for the company. This, for example, would include a start-up trying to compete against Best Buy and its economies of scale.
2. Owners who cannot get out of their own way. They may be stubborn, risk averse, conflict averse — meaning they need to be liked by everyone (even employees and vendors who can’t do their jobs). They may be perfectionist, greedy, self-righteous, paranoid, indignant or insecure. You get the idea. Sometimes, you can even tell these owners the problem, and they will recognize that you are right — but continue to make the same mistakes over and over.
3. Out-of-control growth. This one might be the saddest of all reasons for failure — a successful business that is ruined by over-expansion. This would include moving into markets that are not as profitable, experiencing growing pains that damage the business, or borrowing too much money in an attempt to keep growth at a particular rate. Sometimes less is more.
4. Poor accounting. You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind, and it happens all of the time. Why? For one thing, it is a common — and disastrous — misconception that an outside accounting firm hired primarily to do the taxes will keep watch over the business. In reality, that is the job of the chief financial officer, one of the many hats an entrepreneur has to wear until a real one is hired.
5. Lack of a cash cushion. If we have learned anything from this recession (I know it’s “over” but my customers don’t seem to have gotten the memo), it’s that business is cyclical and that bad things can and will happen over time — the loss of an important customer or critical employee, the arrival of a new competitor, the filing of a lawsuit. These things can all stress the finances of a company. If that company is already out of cash (and borrowing potential), it may not be able to recover.
6. Operational mediocrity. I have never met a business owner who described his or her operation as mediocre. But we can’t all be above average. Repeat and referral business is critical for most businesses, as is some degree of marketing (depending on the business).
7. Operational inefficiencies. Paying too much for rent, labor, and materials. Now more than ever, the lean companies are at an advantage. Not having the tenacity or stomach to negotiate terms that are reflective of today’s economy may leave a company uncompetitive.
8. Dysfunctional management. Lack of focus, vision, planning, standards and everything else that goes into good management. Throw fighting partners or unhappy relatives into the mix and you have a disaster.
9. The lack of a succession plan. We’re talking nepotism, power struggles, significant players being replaced by people who are in over their heads — all reasons many family businesses do not make it to the next generation.
10. A declining market. Book stores, music stores, printing businesses and many others are dealing with changes in technology, consumer demand, and competition from huge companies with more buying power and advertising dollars.