3 Reasons Why Businesses Fail


Owning a business is hard, particularly in the first half-decade of its existence. In fact, 20% of businesses fail in their first year, and another 30% collapse by the end of year five. The good news is that with the right strategy and a watchful eye on your business income and expenses, you can avoid closing your doors. The key is to be aware of potential problems and to quash any existing issues.

Below you will find the 3 most common factors that determine the success or failure of a business, so you can start protecting the health of your company today.

Cash Flow Problems

Insufficient cash flow is one of the leading causes of businesses throwing in the towel. Proper cash flow management ensures that everything else in the business operates smoothly. This extends from stocking up on inventory to paying salaries and utility bills on time. It’s also important to keep records of who owes you money and when you should receive it.

Consistently analyzing cash flow statements will allow a business owner to stay on top of accounts. Whether you use a cash or accrual accounting system, it’s vital that you know how much you have in hand and what you expect to pay out in the near future. This will give you a broader idea of what to expect with your business, ultimately allowing you to keep afloat. If you don’t feel comfortable taking on this task alone, you should hire a firm to help you manage your business finances; there’s just too much at stake not to take action.

Poor Management

As a business starts to find its footing in a given market, it becomes crucial for management to have clear communication and expectations for its employees. Without adequate and efficient project management from the top, personnel aren’t able to efficiently handle the stresses of the required workflow.

By setting clear expectations on a day-to-day basis, employers are given a better chance at managing workflows utilizing the tools at their disposal. Consider allocating a time slot on a weekly or biweekly basis to touch base with your team. You can also arrange a more thorough meeting at the beginning of each fiscal quarter for long-term goal-setting. This approach increases workflow effectiveness by fostering healthy accountability standards within your team.

Expedited Growth

Losing the ability to adequately handle growth in your company is one of the most stressful situations a new business can fall prey to. By expanding operations too soon, companies run the risk of sacrificing efficiency as they are unable to keep up with production. At the same time, they lose capital from not fulfilling client needs and expectations.

As a business owner, your goal is, first and foremost, to create the best client experience possible. So take the necessary steps to make that happen. This may mean delegating many of the tasks you’ve always done on your own. By hiring people you trust, whose passions align with your business message, you can fill the void in the areas outside of your reach. It is also incredibly important to ensure that your staff are adequately trained for potential growth-related problems. Sometimes this is achieved through trial and error, but it’s always best to be prepared whenever you can.

With all the pitfalls lurking throughout the life of your business, it’s easy to get discouraged. But remember: for every 20% of businesses that fail within their first year of operations, another 80% succeed. By reflecting on these 3 factors of failure, your business can join the ranks of the majority and last for much longer than that one-year mark.