It is actually a fact that only about 53% of small businesses are not able to keep on trading after three years after their preliminary set up. Some of the businesses fail within their first year of operation. There are so many reasons why this tends to happen. However, business failure does not only happen with the new businesses but it also happen to those businesses which have been in operation for quite some time regardless of how successful they tend to be.
Even if business failure happens to all sizes of businesses, the small businesses are very much affected by larger threats for the reason that they do not have the support of additional money as well as resources that the big companies have. Business failure does not only come about through the problems experienced in your own company, they can as well be achieved as a subsidiary effect from dealings made by other businesses, clients and suppliers. It is very necessary for one to identify the premature signs of business failure in order to solve the problem before it is too late (Dwight, 1993).
Finally, the business failure comes about when the business has gone beyond a point where it can not continue operating in business any long without encountering supplementary troubles. These troubles might not offer any feasible solutions and for one to go ahead in trading, he or she has to put him or her self in even deeper problems. When the business has reached this point, it is very important for one to acknowledge the business failure early or else he or she will face increased financial as well as legal troubles when trying to save his or her business or he can even go further and put his business to rest.
There so many causes of business failure. So many businesses fail because several managers do not incorporate accounting as well as accounting practices to a practical level in their business. Despite the fact that they don’t posses all the accounting knowledge, they really suffer from the lack of financial control together with the problems concerning the cash flow which leads to business failure. If one has a weak accountancy expertise, he is likely to employ a very knowledgeable bookkeeper to manage the financial records on a regular basis.
It is very important for one to have somebody who can comprehend the monetary accounts plus the management accounts. Before starting up the business one is supposed to find some time to learn the financial management skills (Claire, 1998). Lack of funds is also another cause of business failure. If one finds out that he does not have enough capital to start up the business, he is supposed to wait until the time when he has saved enough money he needs before starting up a business.
If one risks and starts up a business without enough capital then the fellow is destined for business failure. Lack of funds usually leads to too much borrowing and as a result, the business becomes insolvent for the reason that the liabilities becomes too high than the assets. Bankruptcy is a very common result as in it has a cycle of poor management. Lack of funds can also come through competition. As much as the business is offering competitive prices, the business will end up making little profit margin hence it will be too difficult to fund other areas within the business.
High costs of finance is another cause of business failure because it can be so disastrous as soaring interest rates as well as unfavorable compensation schedules are so much ignored due to the difficulty of financing the business (John, 1994). As a matter of fact, it is very necessary for one to manage his or her finance with a very keen concern towards interest as well as repayment schedules in order to avoid the business becoming insolvent in the early moments. The collection of data is rather a frustrating process. One needs to persuade the potential data providers to take part.
One has to convince them about the value of the information to the business. I provided the incentives for sources to participate such as the clean copy of the eventual database of the relative data to the rest of the database. Eventually I drew a data table in the business notebook to help during the collection of data. A data table ensured that the business is consistent in recording data and it makes it easier to analyze the results of the business. The techniques which were used during the collection of data are data mining techniques.
I sorted from large amounts of data and picked out the information because it is the analytic process which is desired to discover data (Claire, 1998). It is expected that all the business persons must have a clear understanding of the failure points in future. Another outcome is that all the business persons must stay in business successfully by not selling cheap products or service. He is not intending to impress the customers but all business persons are supposed to make people feel that they are not getting ripped off. In future all business persons must learn to begin businesses with enough capital.
The business person must always learn to hire more staff when there is too much work to be done. They are not supposed to get behind on the work or else the clients will not feel happy. The business is intending to get sufficient operating funds. The business will require the costs of starting and the costs of staying the business in operation. Enough funds are needed in order to cover all the costs until sales can finally pay for these costs. However, all the funds will be borrowed from the bank which will be repayable after the business picks up.
References Claire, W. (1998). Risky Business: The Personal and Financial Costs of Small Business Failure. California: Policy Studies Institute. Dwight, R. (1993). Failure and Progress. New Mexico: Cato Institute. John, L. (1984). Success and Failure in Small Business. New York: Gower Publishing Company. John, H. (1991). Measurement of Success and Failure in Small Business. Washington: Curtin University of Technology. John, E. (1963). Small Business Instability and Failure. Alabama: Bureau of Business Research.