Causes Of Failing Businesses

January 18, 2010

Nearly half of all small businesses fail within the first two years of operation. The number one reason for business failure is inadequate planning. The second reason is under-capitalization.

So before you mortgage your house, or go into debt financing your business, you have to know if your business is going to do more than survive — you would like to know if it is’s sufficiently good to thrive! Here are 3 things successful enterprises that have stayed in business for 5 years or longer have in common :

1. The idea. A thriving company start-up always starts with an idea. Something that makes your business stand proud of all the rest. So how do you know if you have a good idea?

You have likely got a good idea if you can answer yes to any of the following questions : Does your idea provide the solution to a big problem for your target market? Does it satisfy a need or want? Does it create an opportunity?

The most thriving businesses either fix issues ( either real or perceived ), or they boost your purchaser’s pleasure. They make a repeat need for a service or product among the target market.

2. The market. Your odds of survival are better if you can answer the following questions with a yes : Is there already a market for your product or service? ( It’s way easier to fill a need than making an attempt to create a totally new market. ) Can your target audience afford to buy your products or services? ( if they can not afford it, it’s not relevant how great it is, you won’t sell any ) Will your audience understand your service as valuable? ( If they need it, but don’t think it’s worth what you are selling it for, you will not make any sales. )

3. Your ability. Do you have the people, the resources and the data to be able to solidly provide your products or services to your target market? Can you maintain a competitive advantage? Have you got enough manpower? Can you get the supplies and materials you need over the long run?

Your most important step always is to create a solid business plan. Your business plan is more than an essay on “Why I merit to get funding for my idea” however. Don’t spend all of the time building up a business plan and then chuck it in the bottom drawer of your desk. Your business plan should be a living, respiring roadmap that helps you ensure you’re on course and reaching the goals that you set for your business.

The second step to business survival is getting enough financing. Though the term “bootstrap entrepreneur” describes most home entrepreneurs, having enough capital to be able to keep your business afloat is critical to your survival.

When you are creating your monetary analysis of your business, make sure you are being pragmatic about costs and expenditures, so that you give yourself the cushion you want to be successful.

If finding financing is an issue, either because you do not have enough credit or equity, or there are more problems, make an effort to have a look into the resources that are available in your community. There are a wide selection of grants and loans ( including microloans ) for entrepreneurs, if you know where to look.

Some excellent resources will be : -The SOHO Administration -Local growing businesses Development Centers -Women’s Organizations -Local university or Community school -Chamber of Commerce -SCORE ( The association for Retired Executives ) -Nonprofit organizations that work on economic development in your neighborhood

Use other lucrative business models as a guide. When you are getting started, look around. What businesses are successful? Why? What is it they are doing that’s working? What attributes do you admire, and why? You stand a better chance of succeeding if you are modeling someone who is successful.

Find a teacher. Most entrepreneurs have great talents and capabilities, but no one does everything well. You most likely already know what your weaknesses and strengths are. ( If not, there are several resources and tools that will help you figure it out ) instead of ignoring your weak points, find a mentor who can help you either build your skills in your weaker areas, or offer recommendation for getting what you need.

If you take the time to plan to be successful, you could be making a bequest that’ll be enjoyed by future generations, and that other entrepreneurs will look at as a model for building their own enterprises.

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