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Home > Getting Started > Business Plans > Common Failure Factors
Each year, businesses of all sizes will fail. Small business owners need to plan carefully to avoid these potential traps. What factors contribute to a business' failure?
The following list highlights for current and potential business owners key areas which can contribute to business difficulties and bankruptcy.
- Inability to identify the required management skills necessary for success
- Lack of skills required to put together a successful management team
- Ineffective control over product cost and quality
- Lack of inventory control
- Ineffective customer service programs
- Setting a product price which is too low
- Lack of ability to promote a favorable public image
- Poor vendor relationships
- Indecisive management teams causing inaction on key decisions
- Illness of key business managers and staff
- Lack of succession planning
- Failure to seek help from professional assistance resources
- Failure to utilize tax planning strategies to lower tax debt
- Underinsured against current risks
- Loss of sales momentum
- Lack of trust and cooperation among personnel
- Turnover of key personnel
- Lack of training for staff members
- Insufficient knowledge of company product or service
- Lack of research on competitor's strategies in the marketplace
- Slow response to competitor tactics in the marketplace
- Lack of attention to changing market trends
- Poor internal control of liquid assets
- Insufficient working capital or incorrect gearing of capital borrowings
- Growth without adequate capitalization
- Failure to budget effectively
- Ignoring of data on the company's financial position
- Inadequate financial records
- Extension of too much credit
- No credit control
- Excessive financial debt due to over borrowing (putting the business under control by creditors)
- Ineffective management of accounts receivable (money owned by clients)
Since 1970, the United States has experienced the success of small business innovation, but at the same time, witnessed a high failure rate. Enthusiasm and confidence, while important traits for business leaders, cannot be effective without strategic and tactical planning.
Lack of planning is a key reason why the problem areas in the above list occur. Planning can make the difference between a successful venture and a disastrous one, if all things remain equal, and choosing the right business is the first step in this important process. |
