Business is said to have failed when it stops trading because:
It’s declared bankrupt (a legal process to distribute among the creditors the property of a person or firm which will not, or cannot, pay outstanding debts), or, it voluntarily closes down, because the owner is experiencing financial, or personal difficulties.
By far the largest number of small business failure is due to poor management. In analyzing the reasons for small business failure the mistakes that tend to repeatedly occur include the following:
1. Poor planning: “failing to plan is planning to fail” is an old adage which describes a major reason for business failure. Thorough planning an adequate research into the potential of the business venture are essential, and can dramatically reduce the chances of failure.
You, and your ability to plan and address issues before they become crises, are the most important determining factors in your business is success.
2. Lack of capital: it is easy to underestimate the total cost of setting up a business, and to overlook the fact that there may be a period of non-income earning, while the business is being established.
3. Partnership problems: partners should be chosen on the basis of their ability to contribute to the business, not on friendship. Making a partnership work is a difficult task.
4. Lack of management expertise: the ability to set goals, organize, administer, plan, delegate and budget are all essential qualities for effective management.
5. Incorrect pricing structure: many small businesses tend underprice their products or services, because they had not given consideration to the actual cost of providing these products or services. It is not necessary to be the cheapest, as long as you remain competitive, instances of overpricing then occur less frequently.
6. Inadequate record-keeping: it is essential to keep accurate records in order to monitor the progress of the business, and to comply with government regulations.
7. Failure to seek and or take advice: many small business starters perceive legal and accounting advice, and training in managerial skills, as too expensive and unnecessary.
Given the minefield of small business pitfalls, there are some basic areas listed above that can guide you through this process and prevent you from becoming another failure statistic.
There are however many, many good reasons for setting up a business, and here at Small Business World we provide you with the tools so you can do this.