Business Help

Stop Your Business From Failing

50 percent of new businesses fail in the first year and 95 percent fail within five years. These are statistical facts. How do you ‘buck the trend’ when starting a new business.


Have you asked yourself why some businesses fail and why do some succeed? If you investigate the common reasons for failure prior to starting your new business you will be much less likely to fall victim to your business failing and the pain and loss associated with failure of your business. Here are seven reasons why businesses fail and some tips for avoiding failure.

1. Some start their business with an incorrect focus and for the wrong reasons.

Is the main reason for starting your own business because you want to make a lot of money? Are you looking to spend more time with your family? Do you think that you will not have to answer to anyone else? Do you think you will be a better boss than the one you currently answer to? If so, think again as your reasons for starting your business are flawed. They will cause difficulty and may result in your business failing.

You will have a better chance at business success if you start your business with the following aims and beliefs in mind:

You strongly believe that your product or service would fulfill a real need in the marketplace based on study and investigation of the market.

You have a love for your vision of what you will be undertaking and a passion to bring it to completion.

You have good health, determination to succeed, and the mental capacity to withstand potential challenges and setbacks. [Poor health is often underestimated by people commencing their business and has been responsible for many business failures].

Patience, a positive attitude determination, and drive are qualities you possess.

[Many people give up just when a little more effort will produce the breakthrough and deliver the desired result].You are not defeated by failures. You have the ability to learn from your mistakes, and use these mistakes as lessons to succeed the next time around. [Studies of successful businesses have shown their owners credited much of their success to “building on earlier failures;” on using failures as a “learning process” and treating the costs as “education fees.”]

You have an attitude of independence, and take charge and undertake responsibility when an innovative solution to a challenge is required. This is highly important when working with strict time deadlines.

You have honesty and integrity in your dealings with others and demonstrate that you at least like your fellow man. You treat others at least as well as you expect to be treated yourself. You get along with and can deal with all different types of individuals.

[Make no mistake the genuineness of your intentions will show and will be detected by those you undertake business with and will contribute to your success or otherwise in your business.]

2. Management

You are a good leader creating a sound working environment that encourages productivity, integrity, honesty, and a focus on customer needs. You have the ability to recognize the shortfalls you have in business management and organization and employ specialists in the fields where you have weaknesses. You have the ability to recognize competent people in the areas where you lack the skills and the ability to motivate them to provide the best that they can for your business. You have the ability to train people , to communicate with them, to place them in the correct roles in the organization and are able to delegate tasks to leave you free to manage the business and to develop the vision for the business.  You have good strategic planning abilities to enable the vision to become the reality, to confront and conquer change, to transform the business and to bring to reality the possibilities for the future.

[Poor management is the paramount reason for business failure according to most reports. Lack of relevant business experience and management training, and ability in finance, purchasing, contracts, selling, production, and hiring and managing employees is evident in many new business owners. It is important to recognize shortfalls in expertise, experience and abilities. It is then important to seek help to cover those areas where inadequacies exist and training in the areas of shortfall. Unless business owners recognize what they don’t do well, and seek help, they increase the risk of failure.

Fraud has also caused the failure of many businesses and managers need to be alert to the risks and ensure they have in place control procedures to protect the business from fraudulent transactions.

Studying, organizing, planning and controlling all activities of business operations are vital ingredients in the drive to achieve success. This includes market research, customer satisfaction, and monitoring the business in line with its predetermined key performance indicators to track the ongoing health of the business.]

3. Under Capitalisation.

It is vital when commencing a business to determine how much capital is required for the successful establishment of your business. This capital requirement will include not just the initial opening costs but will include the costs of remaining in business until the business becomes self sustaining from the income received from sales of goods or services. This may be quite a long lead time until adequate cash flow is reached to sustain the business and will include among many factors wages and expenses. A cash flow budget is helpful in determining the extent of capital required and the timing of capital requirements for business commencement.

[Lack of sufficient initial working capital has prematurely ended the life of many good potential business operations. New business owners often underestimate the extent of their capital requirements and then are forced to close before they even have had the opportunity to test their vision for their new business to succeed.]

4. Location, Location, Location

Many people understand the importance of location in respect of the purchase of their home or an investment property. Fewer new business entrepreneurs take location into consideration when establishing a new business. The location can be critical to the success of your business. Frequently a cheap rent location is chosen without regard to the volume of sales likely to be generated at that location in comparison to a better location. A good location may provide the opportunity for a new business establish and thrive. A poor location may not allow the best-managed enterprise to survive.

Some actors which should be taken into consideration when commencing a new venture may include the following:

Any incentive programs for the establishment of business at a particular location,

The volume of passing traffic and the accessibility of the site,

Location of competitors,

Suitability and appearance of building including heritage and safety issues,

If the surrounding businesses and facilities are complimentary to envisages business.

[Many new businesses have failed to thrive through the lack of consideration of the location. Established businesses have failed when moving to cheaper rent facilities as they have not forseen the reduction is sales at the new locale].


5.  Poor Planning

It has been said that ‘if you fail to plan you plan to fail’. This can be demonstrated to be particularly true in relation to the establishment of business. It is critical for all businesses to have a well considered and appropriate business plan. It must be based on up to date realistic accurate information with realistic future projections in all areas necessary for the success of the type of business to be established. Careful, accurate, research relevant and methodical planning, hard work and commitment is essential in reducing risks and increasing the possibility of success for a new business. A good business plan should be achievable, realistic and should include the following information: description of the business, vision, goals, key performance indicators, strengths, weaknesses, opportunities, threats, capital budget, cash flow budget, projected profit and loss account and balance sheet, and others including some which may be industry specific.

[Many businesses do not thrive or fail to succeed because of shortcomings in their planning or because of a failure to plan at all. Many businesses are commenced simply because they have had enough of ‘the boss’ and think it would be ‘nice to own a shop’ only to find that ‘the boss’ they now have is a worse tyrant than the one they had before.]


6. Overexpansion

It is said that ‘a business that is not expanding is dying’.  Expansion for its own sake is inadvisable however. Careful review is required when considering expansion. Indicators of the need to expand can include excessive overtime being worked in the business, delivery of customer’s orders taking unacceptably long, the difficulty in keeping up with production, delivery promises not being adhered to, reduction of stocks to levels that cause stress in the organization and many other indicators.. If there is a good cash flow in the business and a sound regular customer base then a planned expansion should be undertaken. This should only be undertaken after assessment and research. This will include an assessment of the resources required to achieve the planned expansion including human resource requirements, systems, equipment, and capital required to fund the planned changes. It should be remembered that capital is also required to fund increased inventory and increased debtor funding. With adequate planning you can then focus on the growth of the business without doing everything yourself or reducing the remuneration you are able to draw from your business. In other words you will be enabled to maintain quality of life and lifestyle. You can ‘work on the business not in the business’

[Probably more businesses have failed through expanding too rapidly without adequate planning than through any other single cause. Many business owners confuse success with how rapidly the business can be expanded and capital shortages then follow with the inability to pay wages, taxation and suppliers. The downfall of the business in these cases is usually swift, unforeseen, annoying for creditors and painful for the business owners. Insolvency of the business owners usually attends these events and many never really recover from the experience. Frequently family members and friends are affected as they have assisted the business in some way or another.]

7. Marketing

If you are in business today your business should market itself as part of its plan to succeed. Marketing involves more than just advertising. It involves your positioning in the marketplace, targeting potential customers and much more.  Your business should, at the very least, have a well-designed, and user friendly websitethat enables your customers and potential customers to easily access your site. From your site they should be easily able to find out about your business and how to avail themselves of your products and services. Your website can also be used for  additional ways to generate revenue some of which may be referred to as passive income, income that comes in automatically without any effort on your part or that of any employee. This income can be generated from selling advertising space, drop-shipping products of other organizations, or recommending other complimentary non- conflicting products.

[If you do not have a website, you risk losing business to those that have one and ultimately may lose regular customers as their needs are met by another supplier. It is important for your website to be tidy and well presented as often it will be the first impression a potential new customer has of your organization].


Ultimately for your new or continuing business, you, the business owner are the “secret’ to your success. To be successful in business failure is not an option. Any setbacks and challenges are seen as an opportunity to grow and learn from the experience by those with a positive attitude, determination and a ‘cando’ mindset. Generally self made successful entrepreneurs do not possess superior intelligence, their success comes from application to the task at hand, the ability to learn from mistakes – to do whatever it takes to succeed. ‘Your mistakes are not mistakes if you learn what not to do next time’.

Avoiding The Pitfalls

Well experienced practical cost effective business consulting can help you avoid the pitfalls. This is where we can contribute to your success.