Business failure refers to a company ceasing operations following its inability to make a profit or to bring in enough revenue to cover its expenses. A profitable business can fail if it does not generate adequate cash flow to meet expenses. According to The Dun & Bradstreet and INC. magazine, we can see a result of 33% of all new business fail within first six months. Fifty percent of new business fail within their first two years of operation and 75% fail within the first three years. Here are the leading reasons of business failures. The first main reason is people open their business without any business plan.
These business owners simply open their doors for business and then expect it to be succeeded.. There are many consequences that cause business failure because of poor business plan. For example, under funded. Many business fail within the first few months because the owner runs out of money. Running out of money is a result of poor planning, A business plan will tell you exactly how much you require for start up that avoid cash flow problems. Secondly, location is a very important business decision that can cause a business to be success or fail. Therefore we should have choices of location in our business plan.
A good location is one that appeals to large numbers of customers, while at the same time minimising costs. There is one mistake that business owner often made which is only consider about the cost of location but overlook other factors like if the location is not visible to customer or inaccessible to get. Beside that, lack of operating goals and objectives also decrease the probability of business to success. There are some business owners, which create a business, plan to obtain a loan but once they receive their funding, they put their plan on the shelf and do nothing further with it.
By setting up goals and objectives in your business plan, we know where we want to go and exactly how to get there. Goals can increase our effectiveness and objectives back your goals and make you more efficient or otherwise we will just end up muddle along without any improvement. The second major caused of business failure is weak and inexperienced management. Management is the process of dealing with or controlling things and people, the responsibility for and control of a company or similar organization. Poor people management skill leads to poor human resource relations.
Successful businesses motivate their employees to work hard to help the business to succeed. Beside than business planning and management. The last major of causing business failure is poor marketing. Successful modern businesses are the ones that understand and meet the requirements of their customer. Here are some points of poor marketing: first, failure in targeting customer. Do not expect that just because you are now in business, that customer will flock to your door. If you do not understand your target customer, how do expect to effectively reach them? Second, cannot attract new customers.
By understanding the demographics and psychographics of your target customers, you can identify how to best reach them. Thirdly, underestimating the competition. And lastly, not cost competitive. For example, if your selling prices are the same as your competitors and their operating costs are lower, their margins will be higher. If that is the case and you get into a protracted price war with a competitor, you will not survive. As an entrepreneur, I have made a plan of what to do to enhance my chance of surviving in the first year for example for my own supermarket.
Firstly, Establish my aims and objectives. Objectives that are quantifiable, achievable and SMART- specific, measurable, attainable, realistic and timed. Then choose a good location that is visible to customer and easy to access for example, there is bus stop or tube station near my location and consider about the cost that I could afford. A good business plan is very important for my business to survive. Business planning that covers aspects such as marketing, finance, sales and promotional plans, as well as detailed breakdowns of costing and profit prediction.
Before setting up my business, I also take time to understand the industry and try to think differently to avoid of becoming another “me too” business. Me too business means no means of differentiation. I want my supermarket different than other supermarket that can attract customers. Beside that, I will develop income statements and cash flow statements for the first two years of operations. That will tell me whether or not I have sufficient funds to sustain the business until is it profitable.
Never start business until there is enough capital this can avoid cash flow problem while operating business. Get the pricing right by doing market research and obtain information about and to understand the cost structures and selling prices of your competitors. Target customers, and understand what their wants and need and what I can offer best for them. Next, operating my business with good management skill that aims for the best performance and customer services. For example, provide training for new worker, reward employee that work hard.
Treat my employees well that they enthusiastically help to grow my business and avoid of becoming a bad boss. Pay attention on cash flow; avoid spending more than earning by doing Cash budget. Control accounts receivables and inventory carefully. Make sure customer pays money on time and avoid having excess inventory or slow moving inventory, money tied up in products that are of little or no use to the business. Provide suitable marketing program like advertisement and promotion. For example: loyalty card for customers. Lastly, put passion on it and never try to give up.