10 Reasons Why Businesses Fail
1. Inadequate Financial Records
Are you keeping a close eye on your cash flow? You need to have a clear understanding of what you have on hand, how much is owed and how much will be collected. Ensure that your records are current and detailed. You cannot determine the health of your business by sales alone.
2. Disregard of Financial Records
Your meticulous documentation does little good if it isn’t interpreted correctly. Financial records should guide decision making related to payables and receivables. A misunderstanding or disregard of that information can create a cash flow problem for an otherwise profitable business.
3. Failure to Control Costs
You know the numbers, but do you have the proper processes in place? Build an information system that tracks the cost associated with every business function. Take labor for example… You need to know how much time is being expended, you should be able to quickly diagnose problem areas, and you should incentivize employees to make positive change.
4. Lack of Internal Controls
Protect your business from fraud. Take personal responsibility for creating internal controls that prevent the diversion of funds, inventory or property.
5. Poor Customer Relations
Do you know what matters most to your customers? Make it your goal to find out! The extra effort to increase customer service and sales will set your company apart from competitors and increase sales.
6. Insufficient Working Capital
Some businesses can survive for a short time with a small amount of capital, but eventually that will money run out. When it comes to developing a business, “cutting corners” just doesn’t work as a long term strategy. Your business should be able to maintain a financial safety net.
7. Lack of Adequate and Appropriate Insurance
Is your family dependent on the income generated from your business? If so, you 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 Engage Employees
Create a work environment that fosters teamwork and employee engagement. Employees who receive appropriate training and positive reinforcement are happier, more productive and more likely to stay with you long term.
9. Improper Strategic Planning
Your operational business plan should contain realistic and specific goals that include a deadline. Reference your business plan on a regular basis, and include your employees in the discussion.
10. Ignoring Key Performance Indicators
As the business owner, you should have control over factors that cause business failure. Maintain an active role in business planning and take an integrated approach to business processes.
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