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Why
Do New Businesses Fail?
Recent
studies have shown that only
44% of new businesses survive at least four years. This is a huge
problem and normally there are a few problems that could be the reason
for failure.
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Whether a business is making
money or not, it still has expenses such as salaries, rent etc.
This is why it's of utmost importance to have a steady, reliable cash
flow.
Why some businesses fail and why some succeed is a matter of debate,
here are some common mistakes that can destroy a business.
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Read
below for a few tips to avoid the fate of a new business failing:
1. Commitment
A
person who is committed to his business and the success of the business
will have a much greater chance in the business world compared to a
person who is not willing. For example, on a public holiday – most
businesses will be eager to open and capitalise on the extra customers
and tourists.
2. Overspending
The
responsibility of paying back large loans and the stress of having to
meet certain goals and income amounts can be scary. The business will
not need everything right away, so take advantage of loan to rent
agreements or the leasing of assets to decrease the start up cost of
the business. Only when the business is established and has a reliable
cash flow, then you can put more into the business as you are being
rewarded for your efforts.
3. Bad Business Location
This
depends on the type of business, but it does concern all businesses in
some way. Location is very important as your target market will not
want to have to travel long distances or enter dangerous areas to reach
you. Key factors to consider are competition (how many other similar
businesses are located nearby) and accessibility (is the area close to
freeways, public transportation, and foot traffic). Without a large,
faithful customer base, the business will slowly fail.
4. Overexpansion
The
need to be the first to market with a new product and the need to
demonstrate revenue growth to anxious investors can cause a business to
over expand. Rather start with realistic goals and allow the business
to grow slowly, than to over expand.
5. Poor Financial Control
If
you analyse the businesses that fail, you will see that the majority of
them all have something in common. Many of them took on too much debt
and eventually it caught up to them and they were forced into
liquidation. Business owners need to learn to pay strict attention to
their finances and keep careful records of all money coming in and
going out.
6. Failure to Adapt
Businesses
need to be aware of the outside environment and they have to plan for
what changes might arise. Normally there are a number of warning signs
that will give businesses a chance to plan and adapt themselves. Some
changes have forced businesses to close and lose their entire income,
this proves that planning and general knowledge of the market is vital
7. Limited Marketing/Advertising
A
new business will need to advertise and have promotions make potential
customers aware of your business. If customers do not know that your
business exists, then how can you expect them to support you?
Advertising examples are Local Newspaper, Sponsor an event, Donation to
charity, give pamphlets out at schools and shopping centres etc. Marketing a franchise
is important for success.
8. Planning
Inadequate
planning and a poor business plan are not wanted in any business. The
business plan is a vital tool in at your disposal. Planning and
organizational skills are required as you are in control and need to be
ware of upcoming events and arrangements. The business plan can be
useful especially when the business is stuck or needs to be put back on
track.
Did you know
that 90% of new restaurants that open fail in the first year, and 90%
of the remaining restaurants fail in their second year.
If you follow these simple guide lines, then you will be on your way to
a successful business or franchise.
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