5 Common Reasons Why Businesses Fail

Just like a tree a business is either growing or dying. You can’t stand still.

it's a Business Growth Strategist I see many businesses struggling in some eventually close down. What's really unfortunate is the many common reasons for closing down or failure can be avoided. Here are 5 common reasons why businesses fail.

1. Poor customer relations or bad service

Very often customers leave your business because they have encountered poor service, worse still rude service or their expectations have not been met. I'm sure we've all encountered such experiences ranging from the below average to the terrible or unacceptable.  

A few weeks ago, I had dinner at a popular satay stall. Everything was OK until I encountered a stick that was clearly bad meat. At first, I thought it was just that one stick but then to my horror, two more sticks were also like that. So, I brought it to the attention of the stall owner, but he just shrugged his shoulders and said everything is good! Do you think I'll ever go back to the stall? Do you think I will share my bad experience with my friends? How many other customers might have also had a similar experience that night there?

2. Bad budgeting and poor cash flow

Another very common reason why businesses fail is because of bad budgeting and poor cash flow. Cash is like oxygen in a business. If your business runs out of cash you're out of “oxygen” - you‘re dead! And one of the main reasons why businesses run out of cash is because of poor budgeting or poor cash flow planning.

 I coach my clients to plan their cash flow using a 13-week running cash flow forecast. This allows them to project their incoming cash over the next 13 weeks as well as their forward expenses. Then they are able to see any potential cash crunch ahead, measure the cash gap and take appropriate action early to avoid any cash flow challenges.

3. Lack of staff training

Very often this is the reason for reason number one above. Business people sometimes stinge on training their staff at the expense of having low skill workers or worse, incompetent staff with a bad attitude! In this fast-paced digital age, our people need to be constantly upskilled and upgraded if we want to succeed.

I like Richard Branson’s advice - “Train your people well enough so they can leave but treat them well enough so they won't.”

4. Failure to anticipate market trends

This is the age of disruption. Whether it’s the Smartphone, Uber, Netflix or Airbnb, disruption is here to stay. Soon we will have AI, 5G and perhaps fully functional autonomous vehicles. The car disrupted the horse carriage and railroads. Disruption is not new. It’s just happening faster than ever. Small businesses must stay alert and stay nimble.

 5. Poor and inconsistent marketing

One of the biggest weaknesses I find in SME’s is their Marketing. Good business is always driven by good Marketing – building and driving demand, having a clear distinctive point of difference, commanding prices and protecting margins, attracting prospects and converting these to customers, getting customers to return repeatedly and so on. And, importantly doing all this within a budget so you make money.

It amazes me how many cafes and restaurants, for example, spend a ton of money renovating their premises, buying expensive kitchen equipment, developing their menu and then just wait for customers to show up! It sounds crazy but it’s true, it happens everywhere all the time. Many a failed or unprofitable business is due to weak or inconsistent Marketing. Very often, this is the first place we get results with our clients.

Now that you know the 5 biggest reasons why businesses fail you can take the appropriate action to build a strong and solid sustainable business that endures. For a start, you can read my book #ProfitMaxyourBusiness. ??