Common Failure Factors in Business

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.