Ten Reasons Why Businesses Fail

  1. Inadequate financial records. Keep track of how much money is on hand and how much is owed in order to understand the financial picture. Maintaining detailed books and an appropriate record of sales and business is necessary. Keep records current and detailed.
  2. Disregard for or misinterpretation financial records. Improper funding and failure to oversee debtors and creditors are examples of disregard or misinterpretation of records. Keep control of payables and receivables. A business could experience a profitable year and have solid accounts receivable on the books, but be cash poor due to lack of control.
  3. Failure to control costs. Build an information system that tracks cost embedded in each business function or process to control costs. The system should track actual time expended so that labor costs can be controlled while providing incentives for employees.
  4. Lack of internal control. Personally take the responsibility to decrease fraud by putting controls in place to prevent a diversion of funds, inventory or property.
  5. Poor sales and customer relations. Talk with your customers about their focus and interests. The extra effort to increase customer service and sales will set your company apart from competitors and increase sales.
  6. Insufficient working capital. Although some businesses might be able to survive for a short time with a small amount of capital, eventually the money runs out. Initial development of a business is crucial and should be supported with a financial cushion. Maintain a financial safety net.
  7. Lack of adequate and appropriate insurance. Families dependent on income generated from their business should carry long-term disability insurance. Additionally, adequate life insurance protects owners and families from financial hardship. A disaster, such as a flood or fire, can destroy a business. Inventory and assets must be insured.
  8. Failure to adequately train and develop employee relations. Create a team work environment that keeps staff motivated and happy. Employee involvement in the business, training and increased education promotes a feeling of ownership.
  9. Improper strategic planning. Create realistic but precise goals that include deadline, in a formalized strategic and operational business plan. Include employees and consult the business plan on a regular basis.
  10. Track key business matrixes. Business owners should have more control over factors that cause businesses to fail. By tracking key business matrixes, businesses can succeed regardless of economic conditions. Integrating business matrixes is a solid investment and should be part of the process as the business continues to grow.