Common Reasons for Business Failure — And How to Avoid Them

Why do some businesses fail and others succeed? Yes, there is a component of chance or luck involved, but a business owner’s choices really can make or break a company. Many first-time entrepreneurs rush in without fully knowing what’s involved in running a business and without a clear plan. So, while starting a business can certainly be risky, you can reduce the risk factor if you’re aware of common mistakes — and how to avoid them.

Business failure
Business failure

Set your business up correctly

Many budding business owners hold off on registering their business with their state, but delaying this step can have detrimental consequences. Specifically, your personal and business assets are connected if you don’t structure your business, meaning if a company dealing goes south, you’ll be personally responsible financially. A limited liability designation, or LLC, is a good way to protect yourself (it even offers tax benefits). For example, LLC registrations in Wyoming can be done quickly and affordably with an online service rather than a pricey lawyer.

Once you’ve set up your LLC or other business structure, make sure you have any needed local permits to run your business. Your city or county may have rules when it comes to things like working from your home, selling food, and other details, and the last thing you want is to have to pay hefty fines for violating codes.

Mismanaged businesses tend to fail, so know good management techniques

Not everyone who has a great business idea is born with managerial skills. These skills go beyond knowing how to handle money and paperwork. A good manager has leadership qualities such as communication, responsibility, and empathy. As a manager, you will need to strike a balance between knowing how to lead and respect the freedom of others. A good manager is intelligent not only about facts and details but also about people and their feelings. Entrepreneurs who think leadership is all about being domineering usually make a bad impression on clients and will experience a lot of employee turnover.

Related: 7 Key Concepts For Effective Business Management

Make sure you have sufficient capital for your business budget

A major reason why businesses fail is simple: They run out of money. This could happen for several reasons. If you aren’t tracking expenditures, they could get out of control. Or, your ecommerce sales might be lagging because you’re failing to keep customers coming back to your site. Poor accounting can also be a factor: If you forget to put debits in your books or don’t note which checks have cleared, your online balance might not match what you actually have to work with. Set a budget for your business, and make sure every detail is present. Then, determine whether you have sufficient capital to launch. If you don’t, it’s time to seek funding through loans, grants, or investors.

Focus on creating a positive work environment

Have you ever gone into an office or shop, and felt the waves of negativity rising from the workers? Usually, it’s obvious from their demeanor and the service they offer if they are unhappy at work. And usually, once you’ve experienced this, you’re disinclined to return to that business. Think about this if you’re inclined to dismiss employee satisfaction. Give your workers real reasons to care about the well-being of your company. This can involve tangibles such as pay, benefits, and vacations, but also intangibles such as taking the time to listen and giving them credit for their contributions and solutions.

Businesses suffer from poor organization, so keep everything in order

Both your physical spaces and your paper and digital records should be well-organized. This means everything has a place where it belongs and can easily be accessed when needed. Good organization also means accurate record-keeping, which is crucial for your business to thrive.

One main area where it’s easy to get disorganized is payroll, which can be confusing even for seasoned entrepreneurs. And mistakes or delays in this area can be upsetting to workers, and costly for your company. Keep your employees happy by paying on time. For smaller businesses, something as simple as a free payroll calendar template can help you stay organized and on top of your payroll obligations. A good template will automatically calculate wages and deductions and work with your spreadsheet platform of choice, as well as easily integrate with tools for scheduling and invoice management.

Business owners who don’t research the market are increasing their risk of failure.

You need to be educated about the market before your startup goes live. This means researching the competition, standard prices on services, and what kind of demand there is for your product. So, if you are starting an ecommerce company that specializes in upcycled items, for instance, find out what other sites offer similar products, and figure out what you can offer that others do not. Attend seminars and workshops, seek online resources, and find out what your local chamber of commerce can do to connect you with customers and boost your profile.

Know when it’s time to walk away

Despite your best efforts, you may find that you can no longer grow your business in a way that’s worth your while. Should this happen, it might be a good idea to sell it to someone who can take over. You could receive a substantial profit you might choose to use when starting up your next venture. If you’re a sole owner hoping to sell your business as quickly and for as high a price as possible, ExitAdviser (this website) can help. Learn about our all-inclusive selling platform or start your sale here.

The stories of business failure should not scare you away from becoming an entrepreneur. After all, some of the world’s most successful business minds, including Walt Disney, Oprah Winfrey, and Steve Jobs, didn’t reach their dreams on their first try, but they didn’t let that stop them. You should be motivated, however, to research best practices, know the challenges that await, and be equipped to face them.

Published by ExitAdviser


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