Business failure is not uncommon. Be the top 25% who has their profitable business still running after 15 years and beyond.
Business owners will always worry about the business not being successful or failing. You heard it from your friends and family, the news, and you may even have experienced it yourself. It is so common that according to the SBA (Small Business Association), 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10. Besides, over two-thirds of SME chief financial officers (CFOs) say they face a moderate to a significant risk of failure in the next three to five years, according to the American Express CFO Future Proofing Survey.
These statistics may seem scary. However, it also puts business owners in a light where they are seen as being courageous to take up the challenge. If you’re here as a business owner, then you came to the right place in finding out more about minimising the risk of business failure.
Below are some of the most common reasons that cause businesses to fail and how you can avoid them.
- Businesses that don’t adjust to the times and trend
We’ve seen cases and stories like Nokia and Tower Records that failed because they couldn’t keep up with the ever-changing trends of the world. Technology is continually changing, and the world is always figuring out ways of improving the lives of humanity. If your business does not keep up with the change of the world, in the future, you may lose out.
For example, the boom of smartphones came with Apple and Samsung being the forerunners in the industry. Thus, browsing on mobile became more convenient and everyone is on mobile rather than desktop. This called for a change for old company websites to be made mobile-friendly and also mobile applications to be made dominant. E-commerce also started booming due to this, and more and more brands started to have e-commerce integrated into their business for the convenience of online shopping.
- Poor leadership skills
People who lack leadership and do not improve themselves usually find themselves in a failing business. Most people who lack leadership skills have done insufficient planning for the business in the long-term. They also lack the necessary management skills needed to sustain the business. This leads to poor decision making that may ultimately ruin the structure of the business.
One of the most common problems faced by successful companies is growing beyond management resources or skills. As the company grows, one may surpass another individual’s ability to manage and plan. If change is necessary, one should not lower their standards to have vacant positions filled up or tolerate someone within the organisation. It is best to decide on the skills needed for a particular job and insists the individual has them.
- Poor cash flow management
Financial planning is one crucial element of the business and majority of business failures can be attributed to this area. 71% of firms fail because of poor financial planning. Three major problems that arise in this area are an unbalanced capital structure, an inability to manage working capital, and undercapitalization.
New businesses or startups tend to face this scenario more often as they are just starting out and the profits have yet to flow in, in a stable manner. Startups would usually have to prepare for the first six months or more before the gains begin rolling in and if the particular startup doesn’t have enough cash to sustain throughout the period, the prospect for success won’t be good.
Businesses need cash flow to maintain and stay in operation for a long time. Cash flow also helps businesses to stay float through the sales cycles and the natural ebbs and flows of the business.
One of the solutions for cash flow problems is by getting a business loan. You can do so from FS Bolt! FS Bolt offers business owners a financial solution of up to SGD 50k in 24 hours! One can also further improve their financial management skills by reading our article on the common business financial mistakes business owners continuously make.
- Over-reliance on one or a few key customers
At the initial stage of the business, having your first or a few regular customers sound great! However, you can’t keep relying on those few customers in the long-run, as these customers may not buy from you anymore in the future. Other than that, when all of these critical customers stop doing business with you, your company will not survive. There may be several reasons why customers may stop buying, other than your business’ inability to meet their needs. For example:
- Change of management
- The customer goes out of business himself
- The customer decides to drop a product line that your business has been helping with
- And many more…
Having a broad base of customers without compromising the quality of the products is preferred as compared to a small group of customers. If your business is only catering to a small group of customers and affecting profitability, you might want to consider diversifying your customer base in your business plan.
- Unprofitable business model
Some businesses from the outlook may generate a lot of business activity, but if the profits never materialise to the extent necessary to sustain an on-going company, then the business will likely not be in operation for long.
Furthermore, most businesses start with a brilliant idea. However, this does not guarantee the success of the business if no hard work and passion are invested in it. Sometimes, even the best ideas can’t be turned into a high-profit business. It takes more than a good idea to stay in the business for the long-run.
- Uncontrollable growth of business
It’s hard to believe that an overwhelming growth in the business can do more harm than good. This is because going after all the business you can get drains your cash and reduces overall profitability. There may be a significant up-front cost to bear to finance large inventories to meet new customer demand. Certain times, a good thing may not be lasting. One may leverage oneself so far that if the economy stumbles, one will be unable to pay back one’s loans.
A slow, predictable and steady growth is far better than an unpredictable, spurts or jumps in volumes.
- Failure in understanding your customers
Failure in identifying your target audience and customers as well as to understand the competitive market space and your customers’ buying habits will not have your business standing for very long.
You can ask yourself these questions – Who are your customers? How are you going to reach them? Is your product or service seasonal? What will you do in the off-season? How loyal are your potential customers to their current supplier? Do customers keep coming back or do they just purchase from you one time? Does it take a long time to close a sale or are your customers more driven by impulse buying?
Having an answer for each of those questions put you in the right focus for your business, and you will have a clear objective for your business.
- Believing you can do everything yourself
This is another common mistake new business owners find themselves in. It is understandable that the initial phase of a business requires one to save and minimise costs as much, which in turn leads to the business owner or the CEO doing everything by himself/herself. This situation is especially hard for entrepreneurs to let go.
However, there comes a time where the head of the business has to let go a few responsibilities of the company and find someone to help him/her. Only then can you as a business owner, focus on the bigger picture of the company or concentrate on the most important problems or issues faced by your company.
No man is an island, and one would need all the help he/she needs to build a successful enterprise.
Overall, younger companies are statistically more likely to go bankrupt because of shortcomings in managerial knowledge and financial management abilities. In contrast, older firms are more likely to fail because of an inability to adapt to environmental change.
Nonetheless, starting a business can be a rewarding experience if one is willing to learn and grow both personally and financially. A lot of challenges will be thrown your way but by equipping yourself with the necessary knowledge, you will be able to deal with them.
For a business loan that is easier and faster to get as compared to banks, try FS Bolt. With a loan quantum of up to SGD50k, you can get the approval within 2 hours and the funds disbursed to your account within 24 hours.
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