why a business plan may fail

Why do business plans fail?

Table of Contents

Bad product ideas

Poor partnerships , a lack of detail , unrealistic financial planning , how a simple app can help improve your business plan.

Unfortunately, not every business will be a success. The failure of businesses is usually due to some issue in their business plan, and there are hundreds of different issues a business plan could have.

This article will describe some of the most common reasons a business plan might fail and how you can avoid them. We’ll look at common pitfalls such as:

• Poor partnerships
• A lack of detail
• Unrealistic financial planning

Sometimes, a business plan fails simply because it focuses on bad product ideas. A bad product idea means that the product or service your business specialises in does not sell well, and the lack of sales leads to an income problem for your business.

Business plans containing bad product ideas usually come about due to a misunderstanding of the term ‘ unique selling point ’. A unique selling point is what makes your product stand out from the products of the competition. It’s a feature that makes the product better as well as being unique. 

Many bad product ideas come from individuals that focus too much on the ‘unique’ part of the term unique selling point. While it is important to have a different product from anything else on the market, make sure you also know what your customers want from a product .

While it’s nice to have help running your business, it’s important to find the right person for the job before you write a contract for a business partnership . If you create a business plan as a partnership and your partner fails to fulfil their responsibilities, your business will struggle to succeed.

There are three things you may want to consider if you’re trying to avoid poor partnerships. The first is your partner’s skill set: look for someone with talents related to your business idea as well as talents you don’t possess. It’s helpful to have a diverse collection of skills within your business. 

Secondly, make sure your potential partner is as passionate about the business as you are. If they aren’t, you may find that you end up doing most of the work or that they leave the business as soon as things become difficult. While measuring passion and emotional investment is challenging, finding a business partner that matches your feelings regarding your business plan is vital.

Finally, create an exit strategy. While you may have found a perfect business partner, you never know what difficulties you’ll encounter in the future. So make sure you know what to do if there is an internal conflict in your company that you can’t resolve peacefully.

When you write a business plan , you need to make sure that you plan for almost anything. One of the biggest reasons business plans fail is because they don’t account for certain situations.

It’s impossible to plan for truly unexpected problems, but a detailed business plan will account for most situations by listing off your company’s weaknesses during a SWOT analysis . SWOT stands for strengths, weaknesses, opportunities, and threats, and it’s a standard part of most business plans. 

By using SWOT to list weaknesses in your business plan and potential threats to your success, you can start planning ways to deal with problems. For instance, you might identify a lack of sales as a potential threat. To account for this, you could invest in marketing or reduce your prices. If your business plan doesn’t account for these sorts of situations, it increases its chances of failure. 

Another reason for lack of detail in a business plan is low-quality research or not performing research at all. Without researching the market and industry you operate in, you’ll struggle to learn about your competitors or understand your customers’ needs. Thorough research is an essential part of avoiding business plan failure.

Financial planning is essential in business. You might not know the future of your business, but with a decent financial plan, you’ll be able to avoid most obstacles to success. If your financial plan is poorly thought-out or unrealistic, though, it might not be as valuable.

Financial plans are all about mapping out your company’s growth. If you’re too optimistic about this growth, it can cause serious problems. Unrealistic expectations can cause unprepared businesses to go bankrupt very quickly.

For example, say you expect to be making £1,000 a week in sales revenue by your second week of business. Your financial plan relies on this for you to pay rent and buy supplies. If it gets to that week and you’re only making £500, you’ll not be able to pay the bills that allow your business to operate. 

To avoid these problems, try lowering your expectations. Even if you think you have a fantastic product idea, it’s better to prepare for the worst than plan for the best and run into trouble. If you create a conservative financial plan that expects some success but accounts for things like low sales, your business plan is much less likely to fail. 

One of the biggest parts of your business plan is the financial aspect. To create a business plan that’s unlikely to fail, you’ll need to make sure you have a good understanding of accounting and a way to track how you’re spending your money.

The Countingup app offers built-in accounting software with its business account so that you can manage all your financial data in one place. 

With additional features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here .

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9 Major Reasons Why Businesses Fail by Year 2 and How to Avoid Them

Posted january 28, 2021 by jake pool.

According to the Bureau of Labor Statistics, over thirty percent of private companies fail within two years.

Of course, there are external factors that businesses have no control over. Sadly, the COVID-19 Pandemic is a prime example of one. Since such events are unavoidable, let’s focus on internal factors that companies can act on.

9 common issues to avoid when running your business

As a new business owner, what are the traps to avoid from the start? And what can you do to stay in business? By understanding the following pitfalls you can hopefully avoid them and keep your business running smoothly for far longer than 5 years. Let’s dive in.

1. Insufficient funds due to weak forecasting

Without a doubt, poor financial forecasting is the main reason businesses fail.

It is relatively easy to plan fixed costs such as rent, payroll, utilities, hardware, etc. Entrepreneurs should vet this out extensively when writing their initial business plan.

However, it can be more challenging to forecast revenue generated from sales . Many new business owners are overoptimistic in their planning and vision. This results in an inability to amortize (pay off) an initial investment. Thus, the business fails.

Similarly, companies may be tempted to launch their product or services at a cheap price to be competitive. While it can work in the short-term, it’s not a sustainable business model. Once you start with a low price, it’s difficult to increase.

Goals should be ambitious, but attainable. And the budget should reflect accordingly.

2. The business lacks value

The success of any business hinges of its value. It might sound obvious, but it’s not that easy. As a business owner (or future), you probably think your product or service is great. But it’s not enough.

Before launching a business, always do extensive research (there is a lot of data available) on your target audience. Benchmarking and surveys are also a must.

Here are some generic survey questions to ask:

• Would you talk about this product or service with others?
• Have you ever heard of a similar product or service?
• How much would you pay for this product or service?

If your product is only valuable to you or a small group, or it doesn’t offer more value than your competition, it’s time to rethink things.

3. Inadequate business plan

As mentioned in the first point, budgeting is a key element of a business plan . But it’s not the only factor within the plan that will break a business.

A good business plan should include:

• A comprehensive description of the business
• Workforce needs and compliance (current and future)
• SWOT analysis
• Benchmarking Analysis
• Marketing Plan

But a solid initial business plan isn’t enough. Business owners should review and modify it regularly to keep with the pace of the industry and assess internal goals.

Many failed businesses in this scenario end up listed on business marketplaces like UpFlip because there are entrepreneurs out there equipped to change a poor business plan.

4. No connection with the target audience

The first questions any business owner should ask are — Do I know my target audience and do I understand what they need and want?

If you can’t answer those questions, it’s time to conduct more surveys and research. Otherwise, there is a disconnect, and the business will ultimately suffer and fail. It seems like a bold statement, but the biggest part of a purchasing decision is emotion.

Your product or service may have wonderful features and even value, but if it doesn’t connect with your target audience on an emotional level, it will fail.

For example:

If you run an office furniture business, obviously, the technical aspects of your premiere desk chair would be a sales point. But sturdy wheels and a comfortable backrest won’t differentiate you from the competition. 

Yes, you sell a chair. But also sell the idea of success, professionalism, or even luxury. The target audience must connect with your product on those levels. Otherwise, the business won’t stand out.

5. Competition is too stiff

Even with a comprehensive benchmarking analysis in the initial business plan, competition can evolve quickly. In many industries, there are new players every day in their respective markets.

To avoid failure, benchmarking must be a continuous effort. If your competitors are too big, it’s in the business’s interest to find a niche or some form of added value to your products or services.

Take TOMS Shoes , for instance. They broke into the highly competitive world of mid-level shoe sales by offering a socially conscious selling point to the value of their shoes. For every purchase, they give a pair of shoes to a child.

Note how their model also connects with their target audience at an emotional level.

6. Poor management

The success of a business comes from the top down.

Small business owners are often the only managers within a company. While it may work sometimes, it’s advisable to form a proper management team or at least hire a general manager.

Business owners don’t always have the necessary skills or time to be a good manager. Poorly managing or overlooking certain aspects of the business like human resources, marketing, or accounting can have a disastrous effect.

It’s important to learn to delegate to avoid wearing too many hats.

If you don’t have the money or infrastructure to hire full-time help (or in-house), think about outsourcing certain management tasks to a qualified freelancer via Upwork or a similar platform.

Otherwise, someone who can manage the company will soon take over.

7. Lack of a company culture

There is no happy company without happy employees. You may have a great business model and entrepreneurial skills, but the success of the company also depends on the staff.

It’s key to outline and implement a strong company culture from the beginning. And make sure that the people hired align with it.

Once in place, feed and maintain the culture mentality. Otherwise, you risk issues with high turnover. This has led to the internal collapse of many businesses in a shorter time span than two years.

8. Ineffective sales funnel

Getting leads is essential for any company, but your leads are worthless if they don’t convert. Many new companies focus on collecting data and leads and fail to nurture them properly.

To avoid bloating your sales pipeline, you need an effective sales funnel from beginning to end (and beyond!). It could vary depending on the industry, but be sure to nurture your leads as long as needed to complete the sale.

In the ideal sales funnel, leads convert when ready and become ambassadors of the brand. With a quality, automated system, you can sit back and watch it happen.

Here are a few ideas on nurturing leads:

• Send industry-related freebies (How-to Guides, Tools, White papers)
• Share relevant blog articles based on interest (personalization)
• Wish them a Happy Birthday! (Gift, Voucher)
• Set up a referral program with incentives
• Engage with leads on social media
• Use chatbot technology to answer FAQs when unavailable
• Newsletters (Old fashioned, but efficient!)

In other words, create and maintain a relationship even after the sale!

9. Bad marketing

In the early stages of a business, marketing is crucial. The key is to find the right balance between a reasonable budget and efficiency. Fortunately, this is possible thanks to digital marketing.

The two biggest advantages to investing in digital marketing campaigns are cost efficiency and measurable results (as opposed to traditional marketing methods such as print or tv advertising).

When setting up a marketing campaign, define the target audience, budget, and a realistic conversion rate. Again, if you need help, think about outsourcing for Google Ads or social media campaigns.

Many companies fail because of an inefficient marketing plan that allocates funds to ineffective channels or to ineffective content. And when it’s too late, it’s difficult to redirect funds to make up for the loss.

Awareness is key

As stated, some external factors that negatively affect a business are unavoidable, but there are many internal factors business owners can act upon to prevent failure. The first two years are critical to creating a perennial business.

Be aware of these reasons and don’t become a statistic!

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10 Reasons Why Small Businesses Fail and How to Avoid Them

• March 20, 2022

Home » 10 Reasons Why Small Businesses Fail and How to Avoid Them

Small businesses can fail for many reasons, including inadequate planning, insufficient capital, and an inability to adapt to change, just for starters. Understanding the potential pitfalls can help small business owners avoid them and boost their chances of success.

According to the Small Business Administration (SBA), there were 33.2 million small businesses in the U.S. as of 2022 , with 4.2 million of those small businesses in California. And the Bureau of Labor Statistics reports in 2022 that about 20% of new businesses fail within their first year, while only 34.6% of all new businesses in 2012 managed to survive 10 years.

So, sobering statistics aside, how can you help your small business not only to survive but to grow and thrive? Read on to learn some of the most common reasons why small businesses fail and what you can do to prevent them from impacting the success of your business.

10 Reasons Why Small Businesses Fail

1. Lack of a clear business plan 2. Inadequate pricing strategies 3. Poor cash flow management 4. Resistance to change 5. Inaccurate financial records 6. Limited access to capital or credit 7. Not taking advantage of new technology 8. Poor customer service 9. Lack of resources 10. Inefficient operations

1. Lack of a Clear Business Plan

Think your business is too small to require a formal business plan? It’s a common assumption that can often spell trouble for your business from the outset.

Having a business plan that evolves with your business as it grows is essential to its success. Without a plan, it’s impossible to know what direction your business is going. It’s like driving with a blindfold and just hoping for the best. 

When you have a well-defined plan, it provides clear focus and direction for your business and allows you to make more informed decisions. This helps everyone involved to stay focused and work more efficiently and allows your business to operate more smoothly. A strong business plan can also be useful in attracting investors and obtaining financing.

2. Inadequate Pricing Strategies

When starting a business, one of the most difficult decisions is pricing your products and services . It can be tricky to strike a balance between being competitive and making a profit . 

If your prices are too high, you may miss out on potential customers who may go to a competitor that offers lower prices. On the other hand, if your prices are too low, you may be unable to cover your costs and sustain your business for the long haul.

It’s important to do your research and compare market prices to ensure you are in line with the competition and appealing to your target audience. You should also revisit your pricing strategy over time to ensure it’s still competitive and profitable.

3. Poor Cash Flow Management

Money may not be the be-all and end-all of life, but it is the lifeblood of your business. Not only should you have a solid pricing strategy in place, but you need to carefully manage how much money is coming in and going out at any given time.

To ensure that your business has enough cash flow to meet its obligations, it’s critical to stay on top of your billing and invoicing and always be aware of your numbers. This will help you avoid the risk of overspending and ensure that your business remains financially healthy and out of the red.

Also, improving your cash flow will help you plan for the future and make sure you have enough money to prepare for the unexpected . We’ve all faced some tough lessons on this front during the past few years, thanks to COVID and its ongoing impacts on the economy .

At FusePhase, we highly recommend Bill.com to our small business clients for help with managing incoming and outgoing payments. There’s nothing in it for us by recommending them — we just think they’re grand and thought you should know.

4. Resistance to Change

Flexibility is an essential part of owning a business. If you’re resistant to change, you will find yourself left in the dust by the competition and ultimately miss out on potential growth opportunities.

Make sure your business has a strong financial foundation that will allow you to respond quickly and adapt to challenges or changes in the market. Having a flexible mindset can make all the difference in a small business’s ability to survive over the long term.

5. Inaccurate Financial Records

If your books aren’t accurate and up-to-date, you can’t have a clear understanding of your financial situation. And without visibility into your finances, it can be difficult to make well-informed decisions that will benefit the long-term growth of your business.

Block out time in the calendar to devote to cleaning up your books as soon as possible. Your finances are the foundation of your business and essential to its success, so it’s critical that you don’t neglect them.

If you and your team are having trouble staying on top of managing your books on a regular basis, it may be time to seek help from a professional accounting and bookkeeping service .

6. Limited Access to Capital or Credit

Having limited access to capital or credit can make it extremely difficult for small companies to reach the next stage of growth or even keep their businesses afloat.

If you’re looking for ways to fund your business and boost its financial standing, start by getting your finances in order.

Lack of funding can prevent small business owners from taking advantage of emerging opportunities and investing in new products and services. It can also limit the ability to hire more staff and expand marketing initiatives to drum up new business.

If you’re looking for ways to fund your business and boost its financial standing, start by getting your finances in order. Tidying up your books, looking for ways to improve your cash flow, and creating a realistic budget for your business will help to lay a solid financial groundwork you can build on.

7. Not Taking Advantage of New Technology

Gone are the days of manually managing mountains of paperwork, filing documents, and storing information in physical filing cabinets. And frankly, good riddance.

Nowadays, the most successful businesses are embracing cloud-based technology to help them run their operations more efficiently and streamline their processes. This technology provides a more organized and secure way to store and manage data, helping businesses save time and money. 

Nowadays, the most successful businesses are embracing cloud-based technology to help them run their operations more efficiently and streamline their processes.

Better yet, the cloud also enables them to access their data from anywhere, anytime, allowing them to stay connected and informed. All in all, cloud-based technology has revolutionized the way businesses operate and has enabled them to become more successful.

8. Poor Customer Service

The best way to promote your business and its growth is to keep your customers happy. When your customers are happy, they will spread the word about your business and help to draw in more customers.

It’s essential to dedicate enough time, energy, and resources to give your customers the care and attention they need. Investing in customer service, providing quality products and services, and giving customers an overall positive experience are all ways to turn them into brand ambassadors . Doing so will help to ensure the success and growth of your business in the long run.

9. Lack of Resources

Running a business is not for the faint of heart. It seems there is never enough time, money, or qualified help to go around. Having an endless to-do list with limited resources can really stunt the growth of your business and keep it from reaching its full potential.

Also, finding and retaining qualified help can be a difficult endeavor, as there may not be enough funds to pay competitive wages or enough time to properly train and manage in-house employees.

From cloud-based technology to on-demand experts for hire to help fill personnel gaps, business owners have more user-friendly options than ever to help streamline their operations, improve efficiency, and better use their resources. With the right tools and strategies in place, business owners can take advantage of these solutions designed specifically with small businesses in mind and maximize their potential for growth.

10. Inefficient Operations

Streamlining your business operations can help you become more productive, efficient, and cost-effective. This can lead to increased profits and allow your business to scale more rapidly.

More efficient operations can also help you deliver more consistent, timely service to your customers. Happy customers will help any business to grow and thrive!

Take the time to analyze your current operations and identify ways to reduce costs and make processes more efficient. Invest in technology and automation to help reduce manual labor, and look for ways to eliminate unnecessary steps or redundancies. 

Additionally, consider taking advantage of outsourcing services or partnering with other businesses to help with areas where you may need additional expertise or resources.

Read more: How to Make Your Business More Efficient

Set Your Business Up For Success

If you feel your business is stuck in a rut and on the road to failure, don’t give up too soon! You have resources available to you to help you get your business back on the right track.

A good place to start is to identify and address any issues that might be hindering the success of your business, and our team of finance and accounting experts at FusePhase can help. Whether it’s organizing your finances, establishing a business plan, or addressing operational inefficiencies — we’ll work with you as your partners to help your business become more successful.

Ready to get your business on track for more growth and profitability? Contact us today to discuss your options!

This article was originally published on March 20, 2016, and has since been updated for accuracy and relevancy.

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Why I Started FusePhase

3 Things You Should Do for a More Successful Business

4 New Year’s Resolutions to Make for Your Business

14 reasons why businesses fail

If you’re starting a business, you may be wondering how many businesses fail either in the short-term or the long run. Unfortunately, business failure is common: About 20% of small businesses fail in their first year, and a staggering 96% of businesses will fail over a 10-year period of time. As for the remaining 4%, it does not necessarily mean they succeed – it means that they’ve survived.

Why Businesses Fail

So why do businesses fail? What makes one entrepreneur succeed while another experiences business failure? It comes down to a combination of preparation, strategies and knowledge.

1. Not having an effective business plan

If you don’t have an effective business plan, you can’t properly communicate your vision to your team. Tony Robbins advocates not just having a business plan, but having a business map for entrepreneurs to take their small businesses to the next level. Your business map will help you master vital stages of the business cycle, like scaling. Explosive growth can be tempting, but not scaling in a mindful manner is one of the biggest reasons why businesses fail – you have to strike the right balance between growth and infrastructure.

2. Not putting the customer first

One of the top reasons why businesses fail is that they fall in love with their product instead of their customer. To circumvent business failure, fall in love with your client and figure out every single way you can meet their needs. Anticipate what they want, what they need and, when possible, determine what they might not even know they need yet. Turn your customer into a raving fan – somebody who will tell everybody about your product or service or company. Once you grasp that your customer’s life is your business’ life , you can truly envision how to succeed.

3. Not hiring the right people

Hiring the right people has a massive effect on nearly every area of your business. One of the most obvious examples is sales: If you don’t have enough sales, you can’t pay your team or yourself and you cannot grow. Confident salespeople are a key to increased sales. It’s also astounding how many businesses fail due to inventory mismanagement. Hiring someone who is skilled at inventory management or using a good inventory management software is an easy way to solve this issue.

4. Doing it all yourself

Yes, you are an entrepreneur, but that doesn’t mean you have to do everything on your own. A business is only as strong as the psychology of its leader – and the ability to let go and trust others is an essential leadership trait . If you need to control everything, it’s likely you won’t succeed over the long term. Delegating is a top skill to manage a business effectively: it helps you manage your time, focus your energy on what matters most and spot potential up-and-coming leaders within your company.

5. Lack of flexibility

Remember Blockbuster? Radio Shack? Tower Records? These giants of their industries all fell victim to the same reason for business failure: inability to adapt to a changing market . Entrepreneurs who fall in love with a service or product and refuse to change directions when the market demands it are likely to fail. The key to long-term success – in business and in life – is flexibility and a willingness to pivot when necessary.

6. Lack of innovation

Peter Drucker and Jay Abraham, among the greatest business minds of our time, maintain that business failure – and success ­– all starts with two key factors: innovation and marketing . Innovation means finding a better way to meet your clients’ needs than anybody else. Anybody can make some money for some amount of time. But if you want to become successful and sustain that success over years and over decades – if you want to build a brand – then you have to find a way to add more value than anybody else in the game. And that comes from constantly innovating.

7. Not understanding your industry

This is one of the driving factors behind why businesses fail to innovate. Certain industries require more innovation, while others may have different product life cycles. Consider the technology industry. The life cycle on an average product is about six months. And in some sectors, like the app business, it’s just one month. People expect continu a l innovation and improvement , and if you don’t deliver that to them, someone else will. It’s a different world we live in today, where the only constant is change. And if you aren’t staying ahead, you’re falling behind.

8. Fear of business failure

Business failure is one of the main, if not the biggest, fears of any business owner. If it weren’t for that fear, we wouldn’t even be asking, “Why do businesses fail?” However, as you develop your entrepreneurial and managerial skills, you will find that one of your greatest assets in running a successful business is overcoming your fear of business failure. Without minimizing the validity of your fears, you need to learn to view business failure as a learning opportunity rather than an insurmountable obstacle. Remember, life happens for you, not to you .

9. The wrong mindset

One of Tony Robbins’ central philosophies is that our mindsets create our realities; what we believe influences what we are able to achieve. As entrepreneurs, when we embrace strategies for turning business failure into success, we transform our mindset from one of defeat into one of empowerment . And when we are empowered, a failing business is not the concluding chapter in our story; it is only the beginning. Don’t let your limiting beliefs disempower you. Instead, stay hungry in your search for success . Your hunger will inspire you and pay off in the end.

10. Lack of vision

Marketing guru Jay Abraham understands the question of why businesses fail. It’s a high-velocity and high-leverage mindset that prepares business owners to navigate the ever-changing seas of business. Rather than adapt your dreams to the economy, you must set and achieve your own goals, independent of circumstances. How can you accomplish this? By recognizing that business success hinges on loyalty to a vision.

11. Lack of passion

A passion-driven mindset lets you persist in honing your ethics and beliefs while learning from all the reasons why businesses fail. By adhering to your passions, you’re able to see your circumstances clearly – the positives and negatives. With this level of focus, you create an unstoppable drive to accomplish your goals. This focus allows you to take risks, acknowledging that feelings of doom and failure arise not from circumstances but from feeling stuck in the status quo. Don’t get stuck – persist.

12. Ineffective marketing strategies

Whether your company is large or small, marketing is the next critical step . Why do businesses fail in their operations? If you cannot find a way to market your product or service, then your business will have a hard time getting off the ground. Because the truth is, you could have the most innovative product or service, but the best product doesn’t always win. Do you think McDonald’s has the best burger? Probably not. But their marketing strategies are top-notch.

13. Not understanding your X factor

To market effectively and prevent business failure, you have to understand what your “X-factor” is. What are you here to deliver and how can you improve your customers’ lives? Take, for example, FedEx founder Fred Smith. Even in FedEx’s early stages when profits were slim, Smith invested in three market studies for testing the value expedited shipping would add to his product. Smith’s research paid off: He discovered his X factor and FedEx is now a household name, in large part due to its corner on the market via expedited shipping.

14. Asking the wrong questions

To help discover what your true value is as a business, go one step further and ask yourself the right questions . This includes core questions like: What does the marketplace need? Who is my customer? What can I do to make my company talkably different ? And perhaps one of the most important questions you can ask yourself is, “What business am I really in?” Let’s look at an example of a wildly successful company that needed to ask itself that very question: Apple.

How Apple came back from business failure

Today, everyone has heard of Apple. It’s one of the most valuable companies of our time, with a market cap of nearly $2 trillion and a stock that is soaring above its competitors. But it wasn’t always that way. Apple is actually the perfect example to look at when considering why businesses fail.

Apple’s founder Steve Jobs was fired from the company in 1985. Before re-hiring Jobs in 1997, the failing business operated at a loss and inched toward bankruptcy. In fact, Michael Dell was advising decision-makers to shut Apple down and give its shareholders their money back. But Apple persisted, and Steve Jobs asked himself one of the most critical questions in his lifetime: “What business are we really in?”

At first, the answer seemed obvious – Apple was in the computer business. But how were they supposed to win back customers when 97% of all computers across the United States were run by Microsoft?

That’s when they realized that no matter how good their product was, Microsoft was embedded and entrenched in the masses. After all, it was one of the main reasons Apple found itself in bankruptcy.

So Jobs asked, “What business do we need to be in?” And Apple decided that it needed to be in the business of connecting people to their passions – to their photographs, their music, to each other. When he did this, he avoided one of the top reasons why businesses fail: lack of flexibility.

Answering this question created one of the most life-altering shifts for Apple. The company transitioned into building basic, cool technology that connects people to what they love. Upon rehiring Jobs, the company arranged a partnership with Microsoft which signaled the company’s turnaround. When Apple launched the iMac just one year later, the firm returned to profitability and made its mark. Before long came the iPod and iTunes, then the iPhone. Their net sales soared. Since that point Apple has never stopped innovating, and their marketing campaigns have propelled the company to an entirely new realm. Had Jobs viewed his firing as the death toll of his career (and company), the firm would have never experienced its revival.

Today, is Apple really in the computer business? Only 10.4% of their business is computers, which means almost 90% is not – the vast majority is made up of iPhone, iPad and Apple Watch sales. Honestly answering the question “Why do businesses fail?” was vital for Apple to change course and become profitable.

If success is about innovation and marketing, then you have to decide who your customer is, what they need, what business you are in and what business you really need to be in. Answering these questions can change your entire business, because the answers will ultimately allow you to change your offer. As we say, change your offer, change your business – and change your business, change your life.

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6 Reasons Why Small Businesses Fail and How to Avoid Them

7 min. read

Updated October 29, 2023

Roughly 20% of small businesses fail in their first year, according to recent U.S. Bureau of Labor Statistics data . About 50% fail in the first five years, and only one-third of new businesses are able to survive for 10 years. Research by the Small Business Administration found that about 1 in 12 businesses close in America every year.

If you’re a small business owner, another way to think about these statistics is that 80% of small businesses will survive their first year. Over five years, you have a roughly even chance of survival or failure. Looking out 10 years, you have a one-in-three chance of enduring.

What are the reasons businesses fail to thrive, given a 50/50 chance of survival and assuming a product or service for which there’s a demand? Let’s discuss six reasons businesses fail and some ways you can avoid business failure.

• 1. Leadership Failure

Your business can fail if you exhibit poor management skills, which can be evident in many forms. You will struggle as a leader if you don’t have enough experience making management decisions, supervising a staff, or the vision to lead your organization.

Perhaps your leadership team is not in agreement on how the business should be run. You and your leaders may be arguing with each other publicly, or contradicting each other’s instructions to the staff. When problems requiring strong leadership occur, you may be reluctant to take charge and resolve the issues while your business continues to slip toward failure.

How to Avoid Leadership Failure: Dysfunctional leadership in your business will trickle down and affect every aspect of your operation, from financial management to employee morale, and once productivity is hindered, failure looms large on the horizon.

Learn, study, find a mentor, enroll in training, conduct personal research—do whatever you can to enhance your leadership skills and knowledge of the industry. Examine other business and leadership best practices and see which ones you can apply to your own.

2.  Lacking Uniqueness and Value

You may have a great product or service for which there is strong demand, but your business is still failing. It may be that your approach is mediocre or you lack a strong value proposition. If there’s strong demand, you probably have a lot of competitors and are failing to stand out in the crowd.

How to Avoid Value Proposition Failure: What sets your business apart from competitors?  How do you conduct business in a way that is totally unique? What are your competitors doing better than you are? Develop a customized approach or service package that no one else in your industry is using so you can present it as a strong value proposition that attracts attention and interest.

This is how you build a brand . Your brand is the image your customers recognize and associate with your business. Your brand identity, including your logo, tagline, colors, and all the visible aesthetics and business philosophies that represent your company should be supported by your value proposition. It should separate you from the pack and present your individual perspective to your customers. Do everything you can to present that unique value proposition to your market so you can capture a market share and begin building your conversion rates.

To publicize your brand and set yourself apart, you will also need to step up your marketing plan and use as many venues as possible to present your brand to the public. You may be far better than your competitors but that won’t make any difference if your prospects don’t even know you’re in the game. Use social media, word of mouth, cold calling, direct mail, and other tried-and-true marketing techniques. Ensure you have a well-optimized online presence, develop lead generation and contact information capture techniques such as offering high-quality content on your site, a subscriber newsletter, and information giveaways.

3.  Not in Touch with Customer Needs

Your business will fail if you neglect to stay in touch with your customers and understand what they need and the feedback they offer. Your customers may like your product or service but, perhaps they would love it if you changed this feature or altered that procedure. What are they telling you? Have you been listening? Or is the market declining? Are they even still interested in what you’re selling? These are all important questions to ask and answer. Maybe you’re offering a product or service that is fallen well below trend.

How to Avoid Losing Touch with Customers: A successful business keeps its eye on the trending values and interests of its existing and potential customers. Survey customers and do market research and find out what their interests are and keep abreast of changes and trends using customer relationship management (CRM) tools. Effective use of CRM can help keep your business from failing.

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4.  Unprofitable Business Model

Akin to leadership failure is building a company on a business model that is not sound, operating without a business plan , and pursuing a business for which there is no proven revenue stream. The business idea may be good but failure may come in the implementation of the idea if there are no strategic guidelines in place.

How to Build a Good Business Model: Research and review the way other businesses in the industry operate. Develop a complete business plan that includes financial forecasting based on predictable revenue, strategic marketing, and challenge management solutions to overcome potential obstacles and competitor activities. Create a milestone chart with specific tasks and objectives assigned along the timeline so you can measure success, solve problems as they occur, and stay on track. A sound business model that incorporates best practices can help your business avoid failure.

5.  Poor Financial Management

SmallBizTrends.com, a business news resource, offers this infographic which states that 40 percent of small businesses make a profit, 30 percent come out even, and the remaining 30 percent lose money.

You must know, down to the last dime, where the money in your business is coming from and where it’s going in order for your business to succeed. Your business can also fail if you lack a contingency funding plan, a reserve of money you can call upon in the event of a financial crisis. Sometimes people start businesses with a dream of making money but don’t have the skill or interest to manage cash flow , taxes, expenses, and other financial issues. Poor accounting practice puts a business on a path straight to failure.

How to Avoid Financial Mismanagement: Use professional business accounting software like QuickBooks or Xero to keep records of all financial transactions, including every expenditure and all revenues received, and use this information to generate income statements (profit and loss statements). Even better if you use a business dashboard tool like LivePlan that makes it easy to monitor your financials. This is valuable information that you need to run your business, know where you stand at all times, and keep it operating in the black. If you lack skill in financial management, consider hiring a small business advisor and professional bookkeeper or certified public account to help manage your financial affairs.

6.  Rapid Growth and Over-expansion

Every now and then a business startup grows much faster than it can keep up with. You open a website with a trending product and suddenly you are inundated with orders you are not able to fill. Or perhaps the opposite is true. You are so convinced that your product is going to take the world by storm that you invest heavily and order way too much inventory and now you can’t move it. These are both additional paths to business failure.

How to Avoid Growth and Expansion Problems. Business growth and expansion take as much careful and strategic planning as managing day-to-day operations. Even well-established and successful commercial franchises such as fast-food restaurants and convenience stores conduct careful research and planning before opening a new location. They measure local and regional demographics and spending trends, future development plans for the area, and other pertinent issues before they move forward. You must do the same for your business to avoid failure.

Conduct thorough research to ensure the time is right and the funding is available for expansion. Make sure the initial business is stable before expanding to an additional location. Don’t order inventory you’re not sure you can sell but have a plan already in place to fill orders quickly should the demand present itself. The key to successful growth and expansion—and avoiding business failure—is strategic planning.

• Avoiding business failure starts with planning

If 50% of new businesses fail, then 50% of new businesses can succeed. Starting a business is an exciting endeavor that requires a clearly defined product or service and a strong market demand for it. Whether you desire to start a new business or you’re already running a business, you must understand that success depends on careful strategic planning and sound fiscal management that begin prior to startup and continue throughout the life of the business.

Mike Kamo is the VP of marketing for Strideapp. Stride is a Cloud-based CRM and mobile app that helps small- to medium-sized agencies manage and track leads, as well as close more deals.

Table of Contents

• 2.  Lacking Uniqueness and Value
• 3.  Not in Touch with Customer Needs
• 4.  Unprofitable Business Model
• 5.  Poor Financial Management
• 6.  Rapid Growth and Over-expansion

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Written by Grant Olsen | February 2, 2022

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There are all kinds of conflicting statistics and opinions for why businesses fail . The headline of one report might proclaim that “90% of businesses fail in the first 3 years,” while another asserts that by following their tips, “You can enjoy a 90% chance of success.”

It’s difficult to accurately aggregate the numbers and find global statistics on business failures, so we’ll use the United States as a microcosm for trends that are also relevant in Australia, New Zealand, Canada, the UK, and other parts of the world.

Here’s a look at survival rates when viewed at the end of the first, fifth, and tenth years:

• 80% of businesses survive their first year
• 50% of businesses survive 5 years or longer
• 33% of businesses survive 10 years or longer

While these statistics highlight the fact that there’s certainly a risk of failure, they’re higher than some of us might expect. Anytime you’re looking at a vast collection of disparate individuals attempting something difficult, you’re going to see similar trends.

For example, let’s look at how many first-time college students seeking a 4-year degree stay the course all the way to graduation day:

• 33% of students graduate with a bachelor’s degree in 4 years
• 57% of students have graduated with a bachelor’s degree by 6 years

Some of the remaining 43% of students who didn’t graduate within 6 years will likely go on to attain their degree in later years, but it’s too inconsistent of a number to show up in most studies. For thousands of different reasons, hundreds of thousands of students fail to attain their bachelor’s degrees.

So the percentage of businesses that survive 5 years or more is strikingly similar to the percentage of students who earn a degree by 6 years. Sure, things happen that derail many of the businesses and students. But at least half of them are still standing after 5-6 years.

Why Small Businesses Fail to Change

Just as many of those students who earned degrees switched majors during their college experience, it’s critical for business owners to maintain flexibility in their structure and operations. If the COVID-19 pandemic has taught us anything, it’s the immense value of a well-time pivot. Whether your change is compelled by a new idea or the pressures of the times, never hesitate to innovate.

As Dan Fries explains :

Sometimes a crisis, while always tragic, can force some positive effects. It might not feel like that right now, but by responding to COVID-19 will teach you some valuable skills. In other words, this is not the only crisis you are going to face as your business grows, and the lessons you learn in the next few months will be extremely useful when it comes to scaling your startup further down the road. In fact, some of the tools and processes above are likely to be relevant long after the current pandemic has passed.

When businesses embrace this open-minded approach, they usually find themselves among the 50% that are still strong after 5-10 years. As the old saying goes, “If you’re flexible, you’ll never get bent out of shape.”

Yet many business owners remain rooted in their old ways. It’s understandable that they believe in their products or services, and are attached to the business model. After all, it was these elements that inspired them to take entrepreneurial risks in the first place.

But if you love something, you need to take care of it. And part of nurturing your business is being willing to change directions when outside pressures are threatening it. Stubbornness can be mildly amusing in childhood friends or cranky great-uncles, but it can be devastating for a business.

Why do businesses fail when they resist change? Because they’re refusing to acknowledge the primacy of the customer. Let’s review a few examples of roadblocks to success that arose during the pandemic, and how they all connected back to the role of the customer:

• Lockdown prevents a restaurant from serving customers inside the building. This scenario has played out again and again in nations around the world. It presents many dilemmas, but none larger than the inability of a business to directly serve its customers. Successful restaurants found ways to provide new pickup and delivery options, serve their communities, and even send meal kits by mail. They kept providing a quality product, though it might’ve looked much different.
• The supply chain is disrupted. The inability to source the materials or ingredients necessary for your current model is problematic. But the main issue is that it prevents you from delivering what your customers are seeking. If replacements couldn’t be found for the supply chain, a pivot was required. For example, a bakery that couldn’t source eggs might stop selling baked goods and begin selling dry mixes to customers.
• Depleted finances make it harder for customers to make purchases. With customers in many areas struggling to meet financial obligations such as rent and mortgages, it’s no wonder that some had to curtail purchases. By finding ways to lower costs so you can lower your prices, introducing tiered pricing, or creating new product options altogether to meet your customers’ needs, successful businesses continued to meet the needs of those who historically had depended on them.

Whether you’re struggling with cash flow issues or have a broken supply chain, your ability to deliver for your customers will always be the real issue. And discovering new ways to meet their needs will always be the real solution.

The fact is that pandemics will emerge, trends will evolve, and economies will fluctuate. So if you insist on moving your business forward in the exact same way regardless of these external factors, you’ll instead find your trajectory rapidly nosing downward.

The alternative is to commit to meeting your customers’ needs no matter what occurs. While it won’t guarantee a smooth journey, this North Star will guide you through all manner of catastrophes and downturns.

9 More Reasons Why Businesses Fail

We’ve identified the inability to adapt to their customers’ needs as a major contributor to businesses that go under before reaching their 1-year, 5-year, and 10-year anniversaries. When your customer is kept at the forefront, all your other efforts will steer you in the right direction.

But there are many other specific risks facing young businesses. These are risks that you should anticipate early and be on the alert for as time goes on.

With that in mind, let’s now look at 9 other reasons why businesses fail:

1. Poor Planning

Coming up with a great business idea is only the first step because it can’t go anywhere unless it’s supported by a solid plan . Outline where you’ll go in your first month, first 3 months, first year, and first 3 years. Make the milestones measurable so that you’ll know if you’re on track.

Of course, things will occur that necessitate updates to your plan. But the point is that you have a master document that outlines how you’re going to stand out from the competition, how you’re going to deliver value to customers, how you’re going to build your culture, and how you’re going to ultimately thrive.

2. Hiring the Wrong People

We get it—there’s a lot of pressure to build your team in a timely manner so that you can launch a business. But rushing this stage can kill your chances for long-term success.

You need to find people who believe in what you’re doing and have the skills to improve the ways you’re doing it. In the crucial early stages of a business, negative employees can quickly sink morale and overall performance.

3. Failing to Foster a Good Culture

As you assemble your team, communicate openly about the culture you’re seeking to build. Ask their opinions and make a point of incorporating new ideas from your team. The businesses that prioritize profits over people or have a leaders-versus-employees dynamic often fall by the wayside because their toxicity trickles right out of the office and can be sensed by suppliers, partners, and ultimately, customers.

4. Growing Pains

Plenty of defunct companies launched with a strong culture but lost it as the company scaled. There’s obviously no way to maintain all your team’s perks and traditions as new employees swell the ranks, but you can keep the heart of who you are.

Make sure that you continue seeking your team’s input and act on their ideas. New hires will bring innovative suggestions to make things better, while the old guard can share the things that you should most think about retaining.

5. Failure to Stand Out

Even if your business idea is a gem, you’ve still got to communicate it effectively to your audience. Otherwise, you’ll just get lost in the shuffle.

Using the market research from your business plan, craft a unique selling proposition that boldly articulates what makes you different from the rest. Questions to answer include:

• What unique value do I offer?
• Why is my solution better for customers?
• How can I communicate these important differences?

The more you can differentiate your brand, the better your chances for success.

6. Not Focusing on the Essentials

Plenty of businesses lose their way in the first year as distractions pull them from the very things that give them a competitive edge. For example, if your quirky product packaging is beloved by customers, don’t ditch it as your business grows. Instead, find ways to make the packaging more efficient so that it complements your efforts to scale.

When your business stays focused, you’re better able to deliver on your unique selling proposition and to adapt to unforeseen bumps in the road.

7. Not Controlling Expenses

Launching a business is expensive. And growing that business involves a whole new set of financial demands. So it’s understandable that many businesses struggle to keep up with the pace.

You’ll put yourself in a much stronger position by carefully watching your expenses . If something doesn’t help you deliver an even better experience to your customers, it might not warrant the cost. This goes for everything from Netflix on the breakroom television to the vehicles you rent on business trips.

8. Not Managing Inventory

Balancing acts are hard enough for any person, which is why those who perform on the trapeze are referred to as “artists.” But business owners must control the inventory so they don’t lose sales from insufficient numbers or burn through capital by allowing too much inventory to pile up.

You can avoid these fates by investing in inventory management software that helps you track items through the supply chain, in your warehouse, and all the way to final deliveries .

9. Inadequate Profit Margins

It’s possible to bring in substantial revenue and still find yourself in financial danger. One of the factors that have claimed many young businesses is inefficient processes and poor pricing strategies that lead to low profits.

Your business provides distinct value to customers, so you should feel confident setting prices that reflect this fact.

Get the Skills That Won’t Let Your Business Fail

Want more strategies to help your business excel? We’ve prepared a library of free business courses that cover everything from finance to negotiations to advertising. Taught by proven entrepreneurs from a range of industries, they provide the type of insights that usually take years to acquire. In this way, you can fast-track your success and avoid many of the threats that impact other businesses in their early years.

About Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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• Not Investigating the Market
• Business Plan Problems
• Too Little Financing
• Bad Location or Marketing
• Remaining Rigid
• Expanding Too Fast

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Top 6 Reasons New Businesses Fail

The first years of a new business are often the hardest. New business owners must struggle to find capital, suppliers, and customers, all while trying to find enough income to pay their bills. In order to be successful, it is essential for new business owners to prepare for these risks.

According to the U.S. Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more. These statistics haven't changed much over time, and have been fairly consistent since the 1990s. Though the odds are better than the commonly held belief, there are still many businesses that are closing down every year in the United States.

According to the BLS, entrepreneurs started 1,054,052 new businesses in the year ending March 2023. From the historical data, we can expect approximately 210,810 of these businesses to fail within the first two years. With the right planning, funding, and flexibility, businesses have a better chance of succeeding. We'll go through some of the biggest mistakes that startups can make and figure out how to improve your chances of success.

Key Takeaways

• New businesses have the highest chances of failing, due to the combined pressures of raising capital, finding customers, and bringing in enough income to pay their bills.
• About 45% of new businesses fail within the first 5 years.
• Failure to research the market, and prepare a business plan are common reasons for business failure.
• Many companies do not raise enough starting capital, which is essential for new businesses without a reliable revenue stream.
• For more established businesses, there is also a danger of expanding too fast, without conducting enough market research.

Investopedia / Ellen Lindner

1. Not Investigating the Market

So you've always wanted to open a real estate agency, and you finally have the means to do so, but your desire to open the agency blinds you to the fact that the economy is in a down housing market and the area where you want to work in is already saturated with agencies, making it very difficult to break in. This is a mistake that will result in failure from the start. You have to find an opening or unmet need within a market and then fill it rather than try and push your product or service in. It's a lot easier to satisfy a need rather than create one and convince people that they should spend money on it.

2. Business Plan Problems

A solid and realistic business plan is the basis of a successful business. In the plan, you will outline achievable goals for your business, how your business can meet those goals, and possible problems and solutions. The plan will figure out if there's a need for the business through research and surveys; it will figure out the costs and inputs needed for the business, and it will outline strategies and timelines that should be implemented and met.

Once you have the plan, you should follow it. If you start doubling your spending or changing your strategies whimsically, you are asking for failure. Unless you have found that your business plan is overwhelmingly inaccurate, stick with it. If it is inaccurate, it's best to find out what's wrong with it, fix it, and follow the new plan rather than change how you do business based on quick observations.

The more mistakes you make, the more expensive your business will become and the greater the chance of failure. You may also be called to pivot when market conditions change drastically and impact negatively the chances of success based on the initial business plan. In this case, you revisit your plan and edit it fully based on the decided pivot.

According to a study by U.S. Bank, 82% of business failures are due to insufficient cash flow.

3. Too Little Financing

If you have started a company and things aren't working out, and you have little capital and a struggling business, you're not in a good position to ask for another loan . If you're realistic at the beginning, you can plan to start with enough money that will last you to the point where your business is up and running and cash is actually flowing in.

Trying to stretch your finances at the beginning may mean that your business never gets off the ground, and you'll still have a lot of cash to repay. Lean management strategy is warranted in this phase in particular but can be applied even after this phase. Try to think of multi-channels for funding and financing. Get educated about this area and be creative searching alternative sources of financing.

4. Bad Location, Internet Presence, and Marketing

A bad location is self-explanatory if your business relies on location for foot traffic . Just as dangerous, however, is a poor Internet presence. These days, your location on the internet and your social media strength can be just as important as your company's physical location in a shopping district. An online presence will let people know that they can give you their business, so if the need is already there, the availability and visibility of your business is the next important step.

This is similar to marketing . Not only must you make sure that marketing reaches people, but it must also reach the right people. So make sure the type of marketing lines up with the audience you want to reach. Big billboards may not be the way to go for an internet company, just as online ads may not be the way to go for a heavy-construction business. If the need is already established, make sure you're reaching the audience who needs your product or service.

5. Remaining Rigid

Once you've done the planning, established your business, and gained a customer base, don't become complacent. The need that you're fulfilling may not always be there. Monitor the market and know when you may need to alter your business plan. Being on top of key trends will allow you lots of time to adjust your strategy so that you can remain successful. One must only look at the music industry or Blockbuster video to know that successful industries can undergo huge changes.

6. Expanding Too Fast

Now that your business is established and successful, it's time to expand, but you must treat the expansion like you're starting all over again. If you're expanding the reach of your business, make sure that you understand the areas and markets into which you'll now be reaching. If you're expanding the scope and focus of your business, make sure you understand your new products, service and intended consumer as much as you do with your current successful business.

When a business expands too fast and doesn't take the same care with research, strategy, and planning, the financial drain of the failing business(es) can sink the whole enterprise.

Why Do Most Startups Fail?

Most new companies do not survive the startup phase, with 20% failing after the first year. Surveys of business owners suggest that poor market research, ineffective marketing, and not being an expert in the target industry were common pitfalls. Bad partnerships and insufficient capital are also big reasons why new companies fail.

What Is the Biggest Risk for Small Businesses?

One of the biggest hurdles for small businesses is running out of working capital. Since small businesses tend to have a low cash flow, they also have less financial cushion if they face economic hardship, and need to borrow or find investors when they face financial difficulty.

How Do You Find the Best Market for Your Industry?

Finding the right target market is a major hurdle for new companies, and entire industries exist to help market your products to the right consumers. Marketing professionals use focus groups, surveys, and in-person meetings with potential consumers to find out who their customers are, and what products they are looking for.

Research, planning, and flexibility can help you avoid many of the pitfalls of a new business and be a part of the approximately 25% that make it to 15 years and beyond.

U.S. Bureau of Labor Statistics. " Table 7. Survival of Private Sector Establishments by Opening Year ."

U.S. Bureau of Labor Statistics. " Table 5. Number of Private Sector Establishments by Age ."

U.S. Bank. " Closing Strong: Year-End Cash Flow Strategies, Monitoring, and the Role of Spend Management Platforms ."

Square. " How to Identify Your Target Market ."

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Why Do So Many Strategies Fail?

Leaders focus on the parts rather than the whole. by David J. Collis

Summary .   

Today it’s not unusual for corporations that have dominated their markets for decades to be blindsided by upstarts with radical new business models. A lot of young ventures, on the other hand, raise vast sums of money and attract tens of millions of customers, only to collapse when they can’t figure out how to fend off imitators. In these situations and many others, the underlying cause is often a failure to take a holistic approach to strategy.

Strategy today demands more than classic competitive positioning. It requires making carefully coordinated choices about the opportunities to pursue; the business model with the highest potential to create value; how to capture as much of that value as possible; and the implementation processes that help a firm adapt activities and build capabilities that allow it to realize long-term value. Neglecting any of those imperatives can derail a strategy, but CEOs frequently zero in on just one. Entrepreneurs tend to focus on identifying a golden opportunity and don’t think enough about how to monetize it; leaders of incumbents, on capturing value but not new ways to create it.

By tackling all the elements of strategy and integrating them well, however, firms will greatly increase their odds of success.

The CEO’s job of crafting a strategy that creates and captures value—and keeps realizing it over time—has never been harder. In today’s volatile and uncertain world, corporations that have dominated their markets for decades can be blindsided by upstarts with radical new business models, miss the boat on emerging technologies, or be outflanked by competitors that are more adept at shaping consumer preferences. Young ventures can raise hundreds of millions of dollars, attract tens of millions of customers, and achieve lofty market valuations, only to collapse when they cannot figure out how to turn a profit or hold off imitators.

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Six reasons why business plans fail.

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Here are six reasons why business plans fail – and how to make them succeed…

You may well have prepared a business plan some years ago to present to your bank manager. If you revisit that plan now, you will probably be surprised by how little relationship the position of your business now bears to that predicted in the plan. The reality is that most business plans fail. Here are some of the traps to avoid:

1. A dead document

A business plan that is created for a purpose and then discarded will always become obsolete quickly. Making your business plan a living document is essential if you don't want the whole process to be a failure. Only a regularly reviewed and updated plan can be the spur to look critically at your business on a recurring basis.

2. Over-optimism

Most business plans are over-optimistic, especially as regards predicted sales, often massively overestimating the size of the market. Research your market thoroughly. Too many business plans include a SWOT analysis, but concentrate on the strengths and opportunities and ignore the threats and weaknesses.

3. Ignoring the competition

Business plans commonly assume that the competition will make no competitive response or indeed, will have no new initiatives of their own. Study your competitors and try to second-guess their plans. A living document will take into account their actions.

4. New or old?

Too many business plans depend on doing something new, when what is needed is to find a better way of doing what is being done now.

5. Ignoring risk

What are the risks attached to the plan? Think through these and the costs of failure as well as the rewards of success.

6. Profit or turnover?

If expansion is planned, it should result in increased profits, not just sales. Expansion requires finance, people and other resources. Can you get them?

Remember, a good business plan is as much about the process as the final document. Creating your plan will open your eyes to the realities of your business. Keeping it updated will help you stay on the right track. For help with developing your plan, call us .

Start-ups and established businesses looking for help with writing a business plan should contact Attwoods for more help and advice.

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Why Do Most Businesses Fail?

Starting and running a business may be fun and exciting, but it also comes with an inherent risk of failure. This is why we refer to entrepreneurs as risk-takers. They risk their finances and their precious time to start a business that has no guarantee of success.

There are so many moving parts to consider when managing a business. You need to think about your target market, finances, expenses, employees, competition, and so on. Mismanaging any of these facets could lead to the demise of your business.

It’s no secret that more businesses fail than succeed. While this statement shouldn’t deter you from engaging in your entrepreneurial endeavors, it should get you curious about why some entities die before reaching their peak performance.

Knowing why businesses fail can help you ensure your business doesn’t follow the same pathway. So without further ado, here’s a list of 25 reasons that cause the premature closure of a business.

1. Running Out of Money

One of the most common reasons that lead to the demise of a business is a lack of capital to finance growth and operations. Let’s face it – you can’t run or grow a business without money. You need to pay rent, bills, employees, suppliers, and so forth. Without capital, you won’t be able to manage your day-to-day expenses.

Your business can run out of money in two ways: not generating enough revenue to cover your expenses and having customers that don’t pay you for goods or services on time. Both scenarios will hurt your cash flow , and they will lead to you having less capital for your business.

2. Low Sales Volume

Having a low sales volume means you won’t have enough funds to operate your business, let alone pay yourself. It means that you will have to dig into your investor’s pocket to fund daily operations. Without sales, your business will struggle to make profits and get off the ground.

Every business needs to become self-sustaining at one point in its cycle. Aim to have a sales volume that enables you to make a profit, or at least break even. Doing this will ensure you don’t go out of business.

3. Overspending

Overspending is another quick way to sink your business. It may cause you to run out of money quicker than expected. Remember that you need money to fund operations. If you spend your capital in a haphazard or undisciplined way, you may end up lacking finances for essential things such as inventory, rent, and salaries.

As you formulate your business plan, ensure you create a budget for spending funds. Try not to borrow or allocate more funds to your expenditure than is necessary. This way, you won’t feel tempted to overspend.

4. Spiraling Expenses

Having too many expenses reduces the profits your business can make. You’ll end up spending more of your revenue to cover your expenditure than to grow and expand your business. This situation is made worse if your expenses exceed your sales revenue. It will mean that your business is making losses or losing money throughout operations.

You need to keep track of your expenses. They shouldn’t be so high that they hurt your cash flow and profitability. If you can forgo a cost that you don’t need or that isn’t contributing to your business, don’t hesitate to do so.

5. Overexpansion

Overexpansion is another leading cause of failure. Expanding your business in a quick and untamed way can double or even triple your expenses. You’ll have to hire new staff. You’ll also have to spend more cash to sustain the new stores, markets, or product lines. If your sales revenue is not high enough to cover the increasing expenses, you may generate losses or run out of capital.

While it’s not wrong to expand your business into new markets or locations, you need to do it in a steady and rational manner. Ask yourself, “Is my business ready to expand into a new location?” and “Do I have the funds to finance the expansion while ensuring my current branch stays profitable?” Try not to go head over heels into growing without considering if your business is ready.

6. Not Understanding Your Industry

As a business owner, you need to strive to learn all the ins and outs of your industry. Analyzing and understanding your industry will help you innovate and survive the entire business cycle.

If your competitors know your industry better than you, they will adapt quickly and may put you out of business. Familiarize yourself with all the participants in your industry, distribution patterns, and the factors that affect businesses in your industry, among other details.

7. Poor Customer Service

Customers are the lifeblood of any business. You need to ensure they have the best experience purchasing your product or service. Without customers, your entity has a low chance of making sales.

Poor customer service will make your customers turn to your competitors. That will, in turn, hurt your sales and ability to grow the business, which will slowly lead to the demise of your entity.

8. Not Understanding Your Customers and Target Market

Another primary reason that can cause your business to fail is not understanding your target customers. Who are they, and where are they located? What are their wants and needs? Failing to analyze and understand your target market will prevent you from meeting and exceeding your customer’s expectations. In the end, they may opt to go to your competitor who knows want they want.

For example, assume you run an e-commerce business. Most customers who buy online want their products delivered as fast as possible wherever they are. They expect you to ship within the same day or two days at the most. If you don’t understand this customer’s need, you may offer them an unattractive delivery deal. Doing so will leave them dissatisfied with your business.

9. Poor Business Model

A business model outlines how you plan to make money. It’s a strategic guide on how you plan to deliver your products and services to your customers. If your business model is not sound, you may incorporate and implement practices that alienate you from your customers rather than draw you closer.

For example, let’s say you create a business model that sells only through brick-and-mortar stores. Let’s also assume a majority of your customers prefer home delivery and buying online. Your business model will not help you meet your customer’s needs, thus driving them away.

10. Ineffective Business Planning

Some companies fail due to ineffective business planning. Your business plan should clearly describe your entity, strengths and weaknesses, opportunities and threats, and financial and budgetary needs, among other things. It acts as a blueprint for starting and managing the entity and should cover all aspects of the business.

An ineffective business plan may miss essential details such as capital needs and competitor and market analysis. It sets you up for failure even before you launch your operations.

11. Failure to Deliver Real Value

Your product or service needs to offer value to your customers. Offering value can be as simple as making them happy and satisfied or as big as solving one of their problems.

If your product has no real value, it won’t help your customers in any form or fashion. When people don’t buy your products, it leads to inadequate sales and your entity’s gradual demise.

12. Lack of Authenticity and Transparency

Being authentic and transparent helps establish trust with your customers and other stakeholders. If your business lacks these two qualities, your employees may not feel engaged and committed to your mission. Customers may also start to doubt your intentions and thus prefer to purchase from a competitor they trust. Lack of authenticity and transparency might also affect your ability to attract partners and investors to your business since they don’t have faith in you.

13. Failure to Hire and Keep the Right Workforce

Hiring the wrong employees can negatively affect your business in many ways. They may fail to deliver their tasks and deliverables. They may steal from you. They might make mistakes that upset your clients and customers. They can also create a hostile work environment and affect the productivity of others. Whatever it is, you need to do away with ill-fitting employees before they sink your business.

14. Poor Location

Choosing the right location is essential when setting up an office or brick-and-mortar business. The one you select should be accessible to your target market. If you locate in an area where there is no demand for your product or service then it doesn’t make sense to operate there. It should also be safe and appealing to your customers and investors. For example, you shouldn’t choose a location that puts your customers’ safety at risk as they will stay away from your establishment. For more see Choosing the Best Location for Your Business

15. Poor Succession

There comes a time when you, the business owner, may want to retire and leave your business to your heirs or successors. Leaving it to an unqualified individual who doesn’t know the ins and outs of the entity may lead to its death. Strive to appoint your successor in advance and train them before you retire.

16. Starting Your Business for the Wrong Reasons

Why did you start your business? Do you see a problem in the world and want to solve it? Or do you simply want to become wealthy and have more free time? If you start a business for the wrong reasons, you may struggle to overcome the challenges and hurdles that come with it. You’ll find it easier to give up since there isn’t any real passion for starting and running the business. For more see,  Reasons To Start a Business

17. Poor Management

Another common reason that causes a business to fail is poor management. Poor management is evident in many ways. You may observe it in how managers treat their employees or make strategic plans and decisions in the business. You may also see it in their approach to leading the organization.

Poor management causes employees to feel demotivated to work. It leads to poor decision-making and administration in other aspects of the business, such as finances and inventory management.

18. Wrong Timing

Sometimes, the closure of a business has nothing to do with the owner, employees, or the business model. It could be just wrong timing. Maybe your business idea or concept was ahead of its time. It could be that customers are not ready for your product or service. They may fail to adopt it as quickly as you thought, which leads to low sales. Without the sales, your business will have little chance of surviving.

19. Doing it All By Yourself

You may be skilled in all aspects of running a business, but you can’t handle everything on your own. Trying to run your business on your own limits your chances of expansion since you are too busy managing every task. You don’t have the time to sit back and strategize on ways to grow. It also leads to burnout because you are handling everything, from accounting to advertising to customer service and so on. You can only do so much. Don’t be afraid to hire employees and recruit partners to help you. For more see  How to Hire a New Employee

20. Lack of Vision

Every successful business hinges on a mission or vision. It acts as a roadmap to achieve your business’ short and long-term goals.

Without a vision, your business has no sense of direction. It’s basically just existing or surviving. Customers will quickly get bored with you since they may notice the lack of vision for change or growth. Your company may stagnate while your competitors are innovating and expanding their businesses.

21. Offering Products and Services People Don’t Want

Before going into business, take some time to analyze if customers want your product or service. If they don’t want it, you won’t make enough sales. Without sales, your business won’t cover its costs and expenses. You will quickly run out of money and will have to dig into your pockets.  For more see,  Demand for Your Products and Services and Using Passion to Choose Products and Services to Sell.

22. Legal Problems

Failing to comply with legal matters, for example, acquiring regulatory licenses, can lead to your business’s downfall. You may be subject to heavy fines, penalties, and even litigation that may cause you to lose money. Ensure that you acquire all the licenses you need to operate. Also, create a contract between you and other partners to avoid any internal disputes along the way.

23. Bad Partnerships

One primary reason businesses don’t work out is that the partners are a poor match. In the same way, a good partner helps you achieve business success, a bad one can drag you down. They may fail to get their work done, leaving you with more things to handle. They might also have conflicting values from yours. The commitment or the involvement in the day-to-day operations might also be one-sided.

Whichever the case, your business might lose track because not everyone is committed to its success. Before starting your business, take the time to assess and search for the right business partners.

24. Poor Marketing

The worst-case scenario of having a poor marketing strategy is not attracting enough customers to your business. It can hurt your sales and slow your business growth and operation. A lack of sales eventually leads to the closure of a business. Strive to select marketing strategies and avenues that allow you to reach your target market without eating up too much of your advertising budget.

25. Poor Productivity

Poor productivity in business means poor sales. Even if there’s only one person in the company who’s unproductive, they can hurt the performance of your entire business. You need to ensure every partner or employee is doing the best in their roles and responsibilities. If someone is not attending to their duties, something is falling through the cracks. Their lack of commitment may negatively affect your ability to hit business deadlines and goals, which will lead to disappointed customers.

There are so many reasons that can cause your business to fail. Most are within your control as an entrepreneur, but some are not. While failure is a possibility, it shouldn’t deter you from chasing your dream.

Your aim should be to know in advance all the ways your business can fail to avoid those pitfalls. And if you do fail in one way or another, pick yourself up, learn from your mistakes, and try again.

Below are a few resources you can use to expand your knowledge about business failures.

Many links lead to search engine results, giving you the most recent and popular articles.

Books are an excellent way to get a complete picture of a subject. One shortcut you can take is to browse through the table of contents and go to the chapter you’re interested in. You don’t have to read the whole book if you’re only interested in a certain part.

View the most recent Google search results for books related to business failure.

View the most recent books related to business failure on Amazon.

Another source of information to explore newsworthy stories is Google news. Just type in your keyword and get the most recent and archived stories related to your topic.  See Google’s news search results related to business failure.

YouTube is a great source of information for visual learners. When I want to expand my knowledge, I use YouTube. Instead of reading about a topic, I would rather listen to someone go over it on video.

Because Google owns YouTube, it naturally has an excellent search engine. Nonetheless, in addition to the topics you’re looking for, you’ll get a list of related topics, and sometimes those topics are related to issues you might not have considered. I often find a hidden gem among the related topics. So the next time you watch YouTube, look at the list of related videos.  See the most recent videos related to business failure.

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WHY SOME BUSINESS PLANS FAIL

There are approximately 5.9 million SMEs operating in the UK, but making your business successful in the long-term is difficult. Recent ONS data shows that only 42.4% of businesses founded in 2013 were still active in 2018 .

So, how can you improve your chances of success? Something all business owners need to do is create a business plan . A good business plan is integral to the success of your business as it:

• Helps to clarify the direction of your business
• Can highlight problem areas that don’t make sense or need more work.

Many business owners will use their plan to persuade investors or lenders to fund their idea, but a business plan is not just something you write for external funders and then put away in a drawer when you think you no longer need it.

A good business plan should be an invaluable asset and guide to running your business, and should be something you constantly review and update as necessary .

But why do some business plans fail? For some people, it’s simply a matter of not investing enough time and effort into creating it. However, there are some common problems that can prevent a business plan from becoming successful. Here are seven areas where you might be going wrong.

1. Pursuing a bad idea

It can be hard to admit this, but sometimes business plans fail because the idea isn’t feasible. However much time you dedicate to creating a detailed plan, you first need to make sure your business idea is viable.

For example, you should make sure there is a market for your product or service. Conducting market research is vital for understanding the industry and your potential customer base, and will help you to create a business plan that is less likely to fail.

As well as having a good idea, you will need to research the competition. You could have a great business plan, but it won’t work out if it’s essentially a copy of an already successful and established business. You should consider how your business is different from anything else out there and why you are unique. It’s especially important to highlight this in your plan if you are looking for funding, as investors and lenders will need to be convinced of your idea’s potential for success.

2. Not having the expertise

When creating a business plan, you need to know what you are talking about! So, it’s crucial that you (or a business partner) have the relevant expertise and experience to be able to write a workable business plan, and then put your idea into practice.

3. Not being realistic

If you’re writing a plan for your new business venture, it is easy to get carried away and be over-optimistic about how much money you will make. However, this could be a fatal mistake and could cause your business plan to fail.

Business plans should be realistic about future growth and profits. Over-estimating your income is likely to cause problems further down the line, as you could reach a point where your expenditure is more than the money coming in. Being realistic from the beginning will help you to plan your budget accordingly and give your business plan a greater chance of success.

Don’t be afraid to set high targets in your business plan, with both short-term and long-term goals, but make sure they are achievable.

4. Assuming everything will go smoothly

Focusing on the strengths of your business plan and assuming everything will go perfectly is a mistake of many businesses. If your plan doesn’t factor in any potential future issues, then when you do hit a problem it will be much harder to overcome.

Good business plans will address the challenges your business may face, and then lay out strategies on how to minimise these risks and prepare for any unexpected events .

5. Neglecting the finances

Every successful business plan needs to include detailed financial projections.

Business owners will need to look at costs, trends, and their competitors to come up with realistic and achievable figures for their income and expenditure, which will give direction and structure to their business operations

It is very likely that these figures will change, but it is important to have some benchmarks to aim for. The figures will also highlight any major flaws with your business model (i.e. if you are spending more money than you make), so you can make any necessary changes to your budget.

If you want to use your plan to try to get funding, you will need to show how much money you require and what the funds would be used for.

6. Not checking the spelling and grammar

This may not seem as crucial as the other points but, especially if you’re looking to impress investors or lenders, your business plan should be accurate and without any mistakes.

An error-free business plan will make you appear professional, so make sure you review it and double check (and triple check) for any typos or mistakes.

7. Not believing in the plan

Finally, you need to be determined and fully believe in your business plan. You could have the best business plan in the world, but if you don’t put the time and work in to bring it to fruition then it will be destined for failure.

Creating a good business plan and not giving up when problems occur will give you a better chance of making your business plan a success!

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