7 Most Common Reasons Why Businesses Fail

If you are an entrepreneur, you’ve probably wondered why so many businesses fail. According to the National Small Business Association, only 50% of businesses survive for more than 10 years. There are so many moving parts and a constant struggle to stay on track. You might even surprise yourself! If you feel that you lack the skills or experience to start a successful business, consider trying your hand at the small business life. It can be incredibly rewarding! Don’t let these reasons deter you! Whether your goal is to become a millionaire or to create a better lifestyle for yourself and your family, there are many ways to get started.

1) Not Having Cashflow Strategies

The most common reason why businesses fail is a lack of cashflow strategies. Cash flow is a business’ lifeline and a critical factor in determining its success or failure. If the cash flow is not well managed, a business will experience a cash shortage, which is defined as more money flowing out than entering the business. Without a strategy, cash flow can become unpredictable, resulting in the business’ failure.

In fact, a study by the U.S. Bank has shown that more than one-third of businesses fail because of inadequate cash flow management. In addition, a staggering eighty percent of businesses fail simply because they don’t understand or don’t manage their cashflow correctly. And yet, despite this, the good news is that more than 70% of these businesses eventually become profitable, proving that it’s possible to manage cashflow effectively.

One way to prevent cashflow problems is to avoid aggressive growth strategies. Aggressive growth strategies, such as opening a second bakery location before your current location has made a profit, will increase your cash requirements, resulting in lower profit. If you’ve ever tried to expand, you know how quickly you’ll find yourself in the red. You’ve already spent money on rent and inventory, so you shouldn’t add to your expenses before you start seeing a profit.

Cash flow is more about discipline than efficiency. There are no shortcuts or secret cash flow strategies. You need to make rational decisions, based on the knowledge you have. Don’t forget to be aware of your potential customers’ payment histories. Ultimately, it’s all about cash flow. But what happens if you don’t plan for this? Using a cash flow strategy will ensure that your business continues to run smoothly.

A cash flow strategy will depend on your industry and the stage of your business. Small businesses are often faced with a cash flow problem if expenses exceed the cash available. Early stage businesses typically have higher expenses than revenues, as they are figuring out how to market their product or service, validate R&D, and manage contractor relationships. Eventually, a business will need to generate more revenue than it spends.

2) Not Having Passion

Most entrepreneurs don’t start their businesses with their passion. Whether it’s music, movies, or sports, people will find success as they do things they love. While they may not have a deep passion for their work, they can find meaning in the work they do by supporting an important message. While a business without passion is often doomed to failure, it doesn’t have to be that way. There are several ways to find your passion and make it work for you.

Some people argue that passion is a good thing. After all, passion is a great motivator. However, sometimes that passion leads you in the wrong direction. For example, Steve Jobs was passionate about the Apple Lisa, and his obsession resulted in an epic failure. The Lisa cost $10,000, was underpowered, and ultimately didn’t sell enough units to generate a profit. It’s difficult to imagine starting a business without having a passion, but that’s why some of the world’s most successful companies started with passion.

3) Lack of Market Research

Many people think that market research is a time-consuming, labor-intensive task that is done by asking customers for opinions. This type of research, however, is not always as effective as it could be. While grocery-store survey respondents might give you a representative sample of the public, these people might not represent a large enough sample size to make a valid conclusion. Moreover, you may not receive as many opinions from 20 people in the grocery store as you would from 5,000 respondents online.

Despite its importance, market research should never be skimped in the beginning of a new business. The insights from such a study will help companies determine how to best reach their target audiences, which will boost their profits. Without proper research, however, you may be left in the dark and will not be able to make sound decisions. Performing market research properly is crucial, as it will give you insights that help you create a compelling brand and gain loyal customers.

Lack of market research is one of the primary reasons that businesses fail. Instead of identifying what new consumers want and need, businesses simply sell what they already sell. A Starbucks coffee shop, for example, might decide to sell beer and wine after four pm, expecting this to boost sales and profits. However, the coffee house would be better served by embracing new customer demographics and products. The same principle applies to other business strategies.

4) Lack of Expertise

A strong business is the result of the leadership of its owners. Often, decisions made by the top management of a business decide its fate before it’s even started. Unfortunately, many decision-makers lack the knowledge and expertise to create long-term strategies and clear, attainable goals. Even having goals is worthless without a strong management team who can implement them effectively. If you’re looking for the top reasons why businesses fail, you can start by looking at your own management team and their track record.

5) Not having a Good Team

Having a good team is an essential part of running a successful business. It can prevent you from facing the common mistakes that businesses make. The first step is to hire the right team members with the right skills and personality types. The team must have a balanced mix of people with different personalities so that they can contribute creatively and efficiently in order to achieve the company’s goals. It is important to remember that a good team dynamic will produce excellent results for the organization.

If you’re running a business, you’re probably going to need the skills of other people to succeed. While you may be an excellent team player, you don’t have the skills necessary to perform every task yourself. Make a list of tasks that you need help with and hire someone to perform those tasks. You’ll also need people to complement your strengths and take on the tasks you can’t do yourself. Not having a good team is why businesses fail. Having a good team is essential to ensure that your startup is successful. Many startups fail because they overestimate their potential customers’ willingness to pay for their product.

6) Poor Planning

One of the biggest reasons why businesses fail is lack of proper planning. Many entrepreneurs fail because they do not plan for their business’s success. This is not to say that you cannot start a business without a plan, but you must make a solid one and revisit it every year to make sure that it is still on track. Planning is essential for success. Without it, you’ll have a hard time executing your business plan and making necessary adjustments when it is time to make a change.

Without proper planning, you’ll end up with an unbalanced workforce. If you have a lot of workers, but you don’t hire enough, you’ll have problems meeting demand. The same goes for manpower and accessories. Without proper planning, you’ll never be able to meet demand for your products and services. If you don’t plan ahead, you’ll end up with too little of each to satisfy the growing demand.

Project planning involves budgeting and means of sorting funds. When there isn’t a budget, you’ll run the risk of not estimating funds properly and wasting money on projects that don’t meet expectations. Ultimately, you’ll be left with a poor project, which ultimately leads to failure. But what if you’re not the only one who has suffered from a poor planning problem? It’s easy to see how it can cost you dearly in the long run.

Many small businesses fail due to lack of proper planning. Lack of financing and start-up funds are major reasons for business failure. Without adequate funding, some entrepreneurs fail simply because they do not have the cash needed to start the business. Some business owners assume the bank will finance a good idea. This is a very common mistake that could sink your small business in no time. You need to have a succession plan to avoid this pitfall.

7) Overexpansion

Often, the best way to understand if your business is too large is to monitor your staff and customer deadlines. Overexpansion can drive your business into bankruptcy and leave you with no profits. To avoid this, you should stick to slow and steady growth. It will keep your costs in check and ensure you have the resources needed to continue your business’s growth. However, you should keep in mind that overexpansion can quickly overwhelm your budget, preventing you from taking advantage of new opportunities.

Overexpansion is one of the leading reasons why businesses fail. Even if a business has a stable history, it can suffer from out-of-control growth. This may include moving into a less profitable market, borrowing excessively, or allowing growth pains to eat up too much of your resources. In many cases, growth can actually be better if it happens slowly and organically. Overexpansion can also lead to a lack of focus and can negatively affect the culture of the company.

Join The Million Dollar Business Creation (MDBC)

Learn How to Start & Scale your Business from 0 to 7 Figures in Less than 18 Months

On the Million Dollar Business Creation, you will learn:

  • Secrets of building a multi-million dollar business starting from scratch
  • You don’t need to have lots of capital to invest, a prestigious degree or years of experience
  • Whether you are just starting out in business or an experienced entrepreneur, this program will give you powerful ideas and strategies that will multiply your business sales and profits exponentially
  • Why 90% of Businesses Fail…and how the 10% Succeed
  • A Step-by Step Guide on building a business system that works without you How to start a business with very little capital and turn in millions within 18 months

Join Here


Create your FREE Account

Not Sure Where to Start? Watch a Starter Lesson for FREE

Free Guides

Free Courses

Alex Silva

Alex Silva

Alex Silva is an American Entrepreneur, Author and Finance Educator. He is the Founder of Global Wealth Hub, Master Excellence Academy & Other Companies in the Field of Finance & Personal Development. Alex also runs one of Europe's largest private Consulting institution.

Linkedin Profile

Financial Success? It's FREE. Dive in!