If you have a business, and then it’s not making much money, what could be the possible reasons why it is doomed to fail? I’ve listed some of the most common reasons why most businesses fail. If you feel that it is happening to you or to your business, you must whip changes to overcome them. Only you can do that. Do not be complacent.
Lack of experience by the owner. When you enter a business, be sure that as an owner, you possess the skills and the experience to become an entrepreneur. Often times, some big business fails because when the original owner who started the business dies, the heir to the business is not really skilled to handle it.
In order to combat this lack of experience, business tycoons and taipans usually send their sons and daughters abroad to take an MBA degree. Then as soon as they finished their degree, they will give a position in their respective companies to handle specific tasks usually on the management side.
I believe that the most successful entrepreneurs are those ones who started from scratch. They’ve undergone a lot of experiences and through these experiences; they were able to hone and improve their skills as their business grows.
Lack of capital. Of course, a business needs capital. Often times, as the business grows, the more capital it needs to meet the demands of both suppliers and clients. Definitely, if you lack capital, your customers will lose their trust and confidence in your business as it lacks the capacity to meet their needs.
Make sure you have also had the capital when you start a business. It may not be solely from your own pocket. You may loan it in a bank, get financial assistance from your parents, friends, or relatives, or ask the help of cooperatives for small and medium enterprises.
Poor location. In a business, location is definitely one of the most important considerations. Before you start a business, make sure that your location is good. It should be on high foot traffic.
Wrong or too much inventory. Some businesses are inventory intensive like a grocery, supermarket, or a retail store. If you are in the business of perishable goods (foods, ice, etc.), make sure not to stock too much inventory. Try to study the sales and demand of your products and match it with your inventory. You don’t want to have items in your inventory that was left expired because of too much inventory. You don’t want either to have lack of inventory that clients will have to go to another store because you lack what they’re looking for.
Permanent equipment problems. Some businesses have machineries and equipment that are essential for it to run smoothly. If your business requires equipment especially heavy machineries, remember to choose those with the nearest service center to you and with parts available locally. So that just in case it encountered a problem, it won’t really much cause you some serious problems that may hamper your business operations.
Poor credit practices. Almost all businesses are built through credit. A business with good credit standing may have the chance to avail of additional credit lines for capital and operating expenses. In contrast, a business with a bad credit standing might be at risk for foreclosure or liquidation. Learn to manage the cash flow of your business and don’t forget to pay your business debts.
Increasing personal expenses. I’ve seen a lot of this when doing a due diligence for distressed debts before. The owner itself is milking the money in the business for his own personal expenses. Some live a lavish lifestyle with 2 or more wives while some are addicted to gambling in casinos. As an owner, you may choose to have a fix salary for yourself or none at all.
Premature expansion of the business. I’ve also seen this. I was approached by an entrepreneur before as one of the potential investors for the expansion of his small call center business. He offered me a high yield interest of 75% in 1 year and he presented me a cash flow projection on how he would be able to repay me. Unfortunately, I found the business not ripe for expansion. Later on, I found out that instead of opening a third branch, his second branch in Makati closed down.
Bad attitude of the owner. Attitude always play an important role wherever we go. As an entrepreneur or business owner, you must possess the right personality to build rapport and relationships among your clients and employees.
Poor collection. As a business owner, you must also monitor and manage your accounts receivables. Are they being collected on time? Do your customers and clients really pay?
Competition. Of course, you could not avoid competition. There will always be competitors in the market. But what can you do is to improve the quality of your business products or services. You can also assess if you can afford to lower down your prices to compensate for greater sales.
Employee Theft. You must also hire the right employees for your business. Screen them thoroughly before you hire them. Some business owners don’t notice small thefts being done by their employees on a regular basis. They will just be surprised if the amount lost to them accumulated and big enough to catch their attention.
Low Sales. Of course, sales are the revenues and profits of the business. If your business is experiencing a slow down in sales, examine your business by doing a SWOT Analysis. Is it because of the competition? Are there any technological breakthroughs that made your business obsolete? Do you think your marketing tactics are enough? In short, examine carefully what are the primary reasons contributing to the low sales volume.
Too many business expenses. Businesses are made for profits. As the owner of the business, one of your primary goals is to watch over your business expenses. Think of ways on how you can minimize your costs.
P.S. If you have some time for fun, laugh, and entertainment, I posted a list of “sobrang cheesy quotes” for my Filipino readers.
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