5 Causes of Business Failure
Every year thousands of small businesses fail. This is a fact of life and it is often reported in the local and national press. But the one thing we never seem to learn is WHY these businesses fail. What are the common causes of business failure? If we know what they are we can work towards avoiding them in our own businesses.
1. Overheads are too high
If you are starting a small business, you may be better off running it from your home or renting a small office to start with. Don’t rent huge offices you don’t need or hire people who aren’t necessary to your success at this early stage. Keep a tight hold on your overheads so there is less pressure on bringing in money. Sales may be very slow to begin with, so give your company the best chance of success.
2. Too little profit
This could be read as being the same as the item above, but this is not the case. Here we are talking about a product that sells for £4 but costs £3.20 to produce. This clearly isn’t good business sense and it is this kind of thing that leads to small business failure in many instances.
3. The person or people in charge are not suited to running a business
This can cause all kinds of problems. Some people are better suited to being part of a business rather than running it. Being in charge is a big responsibility and it doesn’t suit everyone.
4. The company expands too quickly
Yes it can and does happen every day. This is called being the victim of your own success. Expansion, no matter how warranted it might be, can lead to the collapse of a business if it grows too quickly.
5. Operating in a vanishing market
Perhaps one of the best examples of this is a bookseller. In today’s market, where more books than ever are being purchased ‘virtually’ to read on an e-reader of some kind, booksellers are swimming upstream to stand still. The old story – ‘change or die’ – has never been truer than it is in this example.
If you know the reason for business failure in the examples of various businesses that have already gone under, you can try to avoid going the same way. So educate yourself and build your business slowly and smartly to stand the best chance of success.
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