As a savvy entrepreneur, you should be aware of the most common sources of failure in business so you can avoid them. Let’s run through the commons causes of failure.
1. Poor cash flow management
The majority of entrepreneurs go into business because they have a sharp idea or a passion for a particular market pain point. Some of these entrepreneurs might also have a background in accounting or financial services, but this is more often the exception than the rule. Sad to say, but most new business owners are financially illiterate — or at least start out in that condition. Almost inevitably, this comes back to bite their cherished undertaking.
“Why do most businesses fail? Because they can’t pay their bills,” says Bill Carmody, CEO of an established marketing firm. While vendors and creditors may act like they care about your business, they only care so long as they’re getting paid. “Companies don’t go out of business because they lack profits on their financial documents, they go out of business because they don’t manage their cash and can’t pay their bills.”
2. No market need
According the aforementioned CB Insights study, 42 percent of startups eventually fail because there’s no pressing market need for the products and services they want to sell. That’s the number one cause of small business failure.
It’s important that you study the market and potential demand for whatever you’re hoping to peddle and avoid fooling yourself. Is there an actual need for your product, or are you trying to create one for selfish reasons? Knowing when to pivot or bow out is a skill you’d better have, or you may find yourself in a world of trouble.
3. Operational inefficiencies
Sometimes the business idea itself is sound, and you have the right people and financial acumen, but operational inefficiencies are the thing that holds you back. Paying too much for rent, labor, machinery, materials, shipping and so on can put a strain on cash flow and kill the profit margin. In order for businesses to be successful over the long haul, they must demonstrate a constant willingness to reevaluate and negotiate rates, terms and contracts with the respective parties at every point on the supply chain.