Why a Business Fails

By Barry Thomsen

Thousands of small businesses start up every year. Because a home-based business is so easy to get off the ground, there’s bound to be even more in the future. It seems to be the fad of the 2000’s—to have some type of business entity to call your own. Many full-time employees have off-hour small businesses that don’t compete with their employer. A lot of these enterprises are borderline hobby businesses, but the goal is still to make additional income. It’s so easy to start your business, just like getting married. Get a license, name, phone and a mailing address and you’re in business. But like marriage, it can be difficult and expensive to get out of!

Everyone wants to open small, get lots of orders, make lots of money and eventually sell out for millions. But sometimes, more often than not there are bumps along the road to success. It’s how we maneuver over those bumps that determine our outcome. If you want a successful business that stays in business, you must pay attention to what’s going on and make necessary adjustments along the way.

Most business failures occur because of internal, not external problems. Here are 15 causes of business failures, along with steps you can take today to remedy them:

1. Poor customer care—also known as customer service, this is probably the biggest fault that unsuccessful small businesses have. Customer care is no longer a benefit—it’s expected! And, if it’s not received in a pleasant and professional manner, customers will spend their money where they’re treated better.

2. Insufficient marketing—just opening your store or office, hanging out your sign and saying “the line forms on the right” is not enough. You must advertise, promote and sell your business to your potential customers. You may have the best product or service, but you can’t make money if no one knows about it.

3. Owner attitude—occasionally, you’ll find a business owner who thinks he or she is a king/queen, and everyone (including employees sand customers) must do his or her bidding. This attitude will ruin a business quickly.

4. Poor employee training—undertrained service and customer contact people can frustrate your customers and make them wish that they had gone elsewhere. Constantly putting people on hold makes your company less desirable to do business with.

5. Excessive spending—you don’t need the latest model of everything. Many times used equipment will do the job just as well. Lavish business trips and first-class hotels are not for a growing business; save them for your vacation.

6. Owner neglect—opening your small business and not being present regularly is asking for problems. Even putting a competent manager in charge won’t work unless you monitor his or her progress in person. The numbers alone won’t tell you about customer care and the need for employee training.

7. Lack of business knowledge—if you’re not running a franchise, you’re on your own and you need to know business basics. Read books, take courses or get professional help, because operating a business is more than just sales.

8. Excessive salaries—don’t over-compensate your employees or yourself while trying to grow a business. Pay fair, marketable amounts to new employees and save raises and bonuses for outstanding performance. People should be compensated for reasons other than longevity.

9. Obsolete products or services—if you’re relying on the same products that you had when you started the business, think again. How many people are still playing Pong, using 8-track tapes or wearing leisure suits? Get with the times and find or develop new products or services in your industry.

10. Ownership change—the business is sold or passed down to relatives and they think there’s a better way to make more money. Cutting services and selling lower-quality products is not the answer. Customers have become accustomed to a certain level and if it’s reduced, why should they continue to purchase?

11. No cash reserve—when times are going great, it’s time to store some resources for the slow times. Invest spare capital in a money market or mutual fund. It will be there for your needs when cash flow can’t pay the bills and will be available in a couple of days, rather than the month that a loan would require.

12. Inadequate product mix—are your products what the customer is looking for in a business like yours? Do they complement each other and wow the customer? Do you offer items not easily found or displayed, or is it time to upgrade your merchandising techniques?

13. Pricing out of line—are you trying to make your fortune on a few unsuspecting patrons by charging outrageous prices? Customers will soon wise up and disappear. This doesn’t mean not being paid for value-added services where you can justify a higher mark-up.

14. Lose a big account—a small business can’t afford to put all its eggs in one basket, because when you lose the basket, the entire organization will be in jeopardy. It’s exciting to acquire a large account, but don’t change your whole business over it, and don’t surrender to extreme price concessions. Build your company around small to medium customers. If a big order comes along, consider it a bonus.

15. Tax problems—whether you like it or not, you’re going to pay taxes. So you might as well follow the rules and pay them on time. Getting behind on payroll and sales taxes can only result in government pressure, penalties and late fees. Over time, it can grow to an overwhelming amount.

You’ll notice that competition and economic conditions are not listed. This is because they are normal business situations that every business has and can be controlled. Seldom does a business close because a big competitor moves in, unless they give up without trying to find their niche and get close to their customer. Competitors can make your business even better by calling your attention to increased customer care. Economic ups and downs have been and always will be here—and you need to have a plan to cope with them.

Author Bio: Barry Thomsen is the Publisher/Editor of Small Business Idea-Letter and Small Business Consultant. He can be reached at idealetter@aol.com or 877-700-1322.