What can cause my business to fail? Have you asked yourself this question before? In this article you will get to know 21 factors that can cause business failure...
Many people may be wondering if their business can really fail. This can be due to how big the business has grown or how huge its annual profit is. So in this article, i will be discussing the relevant factors that can cause a business to fail.
Business failure can simply be defined as a situation whereby a business (firm, venture) is unable to meet its expected target.
Business failure can be categorized into two;
Economic failure
Financial failure
1. Economic failure : This is a situation where by the revenue generated can not take care of the cost of running the business or a period when the historical cost of investment is less than the firm's cost of capital.
2. Financial failure : This can be divided into two;
* Technical insolvency : This is a situation where the firms current income can not meet its current obligations.
* Bankruptcy : This occurs when the firm's current liabilities is far greater than its total assets.
Knowing what business failure is all about, and the various ways to which it can occur, we can now discuss the factors that can cause a business fail.
Factors that can cause a business to fail
1. Poor marketing strategy : marketing strategy is the method employed by a firm to increase sales and achieve a sustainable competitive advantage. It helps a firm to identify ways of concentrating on products that will held more sales. But if the marketing strategy is poor, it can be disastrous and may lead to failure.
2. Over/Under placing of price on substitute goods: when price is over placed on substitute goods (goods that perform the same functions with another) buyers will definitely look for substitutes. Or when it is under placed (price) you are likely to have more sales but you may end up making loss. So just place your price a little bit higher or lower if you must do so.
3. Inferior products/ low quality products: when a firm produce inferior products that have substitutes and sell them at the same price with its substitutes, consumers will prefer buying superior ones at the same price (even you).
4. Advert Policy: how a product is advertised and the route of the advertising has a very good role to play in the consumption of the product. For example if your business is an international business, you will need a website, social networking sites such as Facebook, Twitter etc, you can also make use of billboards, magazines, radio, television, newspapers or even a YouTube account. All these advertising route can help you get to your target audience.
5. Lack of sound management : when a business is being managed by inefficient or unskilled management, it's likely that the business will collapse. Therefore it is best to look for sound management with skills and experience towards the field of business.
6. Fraudulent management. This is totally different from unsound management in the sense that the management has a negative mind set. Fraudulent management can be making personal profit behind you without your knowledge. No business owner can employ a fraudulent person intentionally but they always exit in our business life. So if you notice any of them, don't be slow to issue a sack letter.
7. Lack of capital or insufficient fund: this has been a problem affecting so many businesses even some people with good business vision(plan) have also found themselves in the same problem. Insufficient fund in running a business can cause a business to die or fail to meet its expected profit margin. To avoid this you can go to your bank for a loan if you have a good business plan.
8. Government policy. Government policies can change maybe due to government instability, and this can affect a business in the sense that the government can make certain policies which may not be in favour of the firm, this can lead the business to die. For example if a policy is made against importation of certain products and your business depends on imported goods, definitely it will affect the progress of the business.
9. Unfavorable Economy: economic problems such as unbalanced exchange rate, interest rates or currency can affect the progress of the business. It can indirectly cause increase in the price of goods and services which will definitely reduce sales. So avoid places with unfavorable economic conditions before establishing your business to avoid unanticipated failure.
10.Natural Causes: Over the past several years, hurricanes, floods, earthquakes erosions and other catastrophic events have devastated some countries, leaving crumbled debris and scores of broken lives in their wakes.
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In other to avoid unexpected disaster, avoid establishing your business in areas prone to natural disasters
11.Under developed capital market: capital markets provide long term finance (fund) for businesses that are lacking fund. Avoid setting up a business in a capital market that is not develop so that you (your business) can get loans when the are running out of liquid (fund).
12. Underestimating Competition. This is a very vital factor people seem to over look when running a business. Never look down on your competitors, take everything they do very serious and always strive to be ahead of them.
13. Technological Problems: if you make use of equipments or facilities that are outdated such as making use of typewriters when your competitors are using modern computers you will just end up being behind them. Try to update your facilities regularly and make use of the latest versions of them.
14. Poor business plan: poor business plan can lead to failure of a firm. For a business to function properly and successfully there is need for effective and efficient business plan.
Make use of the SWOT (Strength, Weaknesses, Opportunities and Treat) analysis. Examine the strength of the business and try to improve on them. Find out the weakness of the business and try to overcome them. Examine the various opportunities surrounding the business and capitalize on them. Then carefully examine the likely treats that can be found in your business environment.
15. Lack of selling and marketing expertise: if the marketing department of the firm is not functioning properly and lack expertise, it means that the business can't get to its target audience, therefore the revenue that may be generated may not be up to the expected target which can lead to technical insolvency or bankruptcy (as earlier discuss) if not properly taken care of. So always have the right people around you.
16. Poor Cash flow management
17. Unexpected cost (expenses)
18. New entrants to the market
19. Over trading or over expansion
20. Business cycle
21. Poor project conception.
In other to operate a successful and profitable business, you MUST overcome all these challenges if not the business is likely to fail, or may not be profitable as expected.
Please share this, you can be a help to someone, and don't forget to drop your comment. You can send us mail. ejiogucessor@gmail.com
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