The Top Three Reasons Businesses Fail

According to the US Small Business Association there were 627,200 new businesses, 595,600 business closures and 43,546 bankruptcies in 2008.  There are several reasons why business fail, but there are three predominate factors that prevail in almost every case.    

1.      Lack of a Business Plan

Most entrepreneurs think a concept and a business card will result in a huge returns and instant success when attempting to get a business off the ground.  One of the most important aspects of running a successful business is developing a road map.  A business plan will enable you to model your decisions and implement strategies that have been written down as your business progresses from start-up to Fortune 500 status.  Documenting your mission, marketing plan and financial objections will prevent your mobile car detailing operation from becoming a rental car agency.

2.     Poor Management

In many cases poor management is the number one reason for failure. Business owners many times lack knowledge and experience in accounting, purchasing, selling, and managing employees. Unless they recognize what they don’t do well, and seek help, business owners may soon face disaster. The emphasis is if you don’t know it or not that comfortable completing it, outsource it.

3.     Insufficient Capital

A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectations of incoming revenues from sales.  The best way to combat this common problem is having three to six months of expenses stashed away or utilize a line of credit with a finacial institution.

Before time, money and the emotion investment of starting a business is spent, take into consideration that many businesses take a year or two to get going. Make sure you develop a plan, have the knowledge to manage situations and have enough capital to cover costs until your business reaches breakeven or even better profitability.

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