Many entrepreneurs start their business in a hope that the profit will keep them alive and their family. But as the business moves round in its cyclical process of ups and downs, many small businesses busts within few years time of their incorporation. Examples from research are there that many failure starts from the entrepreneurs themselves.
Here are some of the top broad reasons why many start up fails in the early years.
Lack of Business Plan: Many owners fail in the initial period itself due to the lack of proper and effective business plan in place. They fail on the grounds of their strategic planning, and errors are seen within short span of time. Failure to create and adhere to their strategic plans and policies for their operation is one of the most important factors which make the business to go bust.
Inexperienced Owners: Many individuals or partners start a business which is not in their area of expertise and just in a hope to fill the pockets. Without knowing the market and doing a proper research or without having a differentiated service and products they put their hands and money into the sector which is declining or is in high competition. Their lack of knowledge to the market, products and the clients behaviour makes the business to go in bad direction and many of the shareholders blame each other later on for their short comings once the errors starts to speed up.
Under Capitalized: One of the most important factors to look at is the Cash available to the business operation. New Business fails due to the lack of operational funds to run the company. They fail to meet the second round of capital to manage the company after its formation. From my viewpoint at least the entrepreneur needs to set aside 6-10 months of business operational expenses funds separately besides their own family expenses when they start the business. One recent example I have seen from my own client.
Location, Location and Location: As in my previous blog title this was the main reason why I focussed to be careful and how we can choose the best location and here it is once again with a poor location for the business to make it fail. Without knowing the demographics, customer taste and the market niche and establishing the business on the wrong side of the road creates problem.
Personal Expenses Covered: While the business has just started up many partners use their business accounts funds for their personal living expenses which makes less money available to meet the operational expenses of the business and find hard to recover once the problem becomes severe.
Unexpected Growth: Some of the business owners try to expand the business without any through research of whether it’s the time for their business to expand or not? Whether they meet the capital and labour requirements to fund the expected growth or not? Also diverting the business and unexpectedly injecting funds to a new business when the money is available creates problem in finding hard to locate the new customer base and to compete with the large players in the market with their prices and other promotional offers. Sometimes owners negligence makes the business go bust without a proper findings of whether they need the growth or not ? Sometimes slow and steady wins the race. Promoting Organic growth can be an option for survival in the long run also.
Poor Management: Management inefficiencies in terms of improper control of inventory and accounting procedures and thinking sales as total profit and failure to forecast and measure the working capitals for the company, negligence to keep track of the sales and failure to maintain reserves for hard times, inadequate advertisements for the new business and improper pricing policies, failure to meet up with the suppliers payments or failing to recover the non payments from the clients with further added up with poor customer service and quality of products and no place to handle the complaints and feedbacks from the clients are few examples of poor management to fail in early years. Chances are that those looking into these aspects manage to survive for longer runs.
Staffing: Many entrepreneurs believe that they can do everything by themselves and this creates a problem in hiring the workforce needed for the company. Even hiring the inefficient employees or having too less employees or over staffing or making efforts to retain the efficient employees in the business leads to operational inefficiencies which take a good bad shape in the long run further added up with entrepreneurs themselves not taking seriously the business vision to make it successful are few examples.
These are not the overall reasons to accept as small business failures are still hard to define due to less information available either from the statistics or even from the entrepreneurs themselves. But on the emotional sides having the right and true zeal to move forward the business create a positive vibration in the minds of staff and gives a positive energy each day to maintain the flow and to make the company operationally successful.
- Digvijay Thapa
( The writer doesn't take any responsibility and liability of using his blog contents to implementation by anybody in their business, in doing so by any entrepreneur will be at their own decision and will be doing by their own test and analysis results and writer doesn't have any involvement and liability in their action)
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