The Main Reason Why Most Businesses Fail


If there’s one thing that the business environment doesn’t lack, it has to be the large number of companies that appear out of nowhere.

However, you rarely hear about them given the fact that only a few months after their birth they start to crumble and fall like a card tower. The reasons behind their failure are numerous. Whether it’s due to lack of money, shifts in the economy, theft, employee turnover, management and others, most companies are doomed to fail even from the start.

Out of all the aforementioned reasons, which do you consider to be the main as to why most companies fail? Fortunately, now we have an answer.

According to SCORE (Service Corps of Retired Executives), the main reason as to why businesses fail is ineffective management. Whether it’s because of poor planning or simply not understanding what it takes to operate a prosperous business, the ineffective management damages your company beyond belief.

Planning your business is a complex and continuous process that includes several crucial aspects such as research, finding resources, having a good understanding of financial statements regarding the business, writing an awesome business plan to obtain funding, knowing customer tendencies and preferences, being aware of what the competition offers, monitoring industry trends, identifying your “rockstar” employees, conducting a professional hiring process, offering a reasonable compensation package, pricing the products not only accordingly but also profitably and continuing to continuously revise your business plan.

Often times, when your company is going downhill you will notice some warning signs a few months or even years in advance. However, business owners tend to become so involved in their daily operations that they fail to notice them before it’s too late.

One may be inclined to ask what it takes to avoid business failure. Here are some scenarios you should continuously keep an eye on:

Constantly be aware of your cash flow and financial trends. Can you afford to pay the bills on time and still have some revenue left over which you can take home? If you don’t, it is crucial that you begin to find ways on how to increase your income, reduce expenses or even find funding from investors or loans. For me, a combination of the aspects mentioned above turned out to be the solution that ensured the prosperity of my company. Determine which ones are attainable and act accordingly as fast as you can.

Make sure to always get feedback from your customers. Ask them whether they are satisfied with the services and products you provide or if they prefer to shop somewhere else.

Always be specific when you are asking for feedback and listen to their complaints or recommendations which could help you in the long run. Ask them how your products or services could serve them better while also managing the business reputation you have in the online environment.

In the last couple of years has employee turnover become high? If so, make sure to ask them why they chose to leave and find a way in which you can solve those issues. By doing so, they will be more gladly to remain within the company.

Is advertising placed nowadays on the backburner given the lack of funds? A company that doesn’t rely on advertising will have a difficult task ahead of reaching new customer. Finding the resources is never easy but you should go out and check for alternative marketing strategies. Assess the situation and determine through which channels customers find your business and focus all your marketing efforts in those areas.

If you have a business that focuses on selling products, sooner or later you will have to face with the problem of products staying too long on the shelf because nobody or almost nobody buys them. If so, offer discounts for those products to make room for the products your customers are more interested in purchasing. Moreover, if the costs have increased but your prices remain the same what do you do? By leaving the prices unchanged your company will have little room to grow and prosper. Therefore, don’t hesitate and increase your prices if you can’t seem to find less costly suppliers or alternative products you can offer.

Last but not least, you should have the number of an accountant or a business consultant on speed dial. If you have some legitimate concerns regarding the problems you are facing in the development process, they can be your lifeline. Almost every successful business owner have a proactive perspective when it comes to dealing with issues. Also, they are aware that by ignoring them all these problems will not go away. Instead of waiting until it’s far too late, be a person that takes action on a daily basis. Your company will thank you and show its appreciation by means of revenue.

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