Why a lot of Businesses are Destroyed Faster than they are Created

Why a lot of Businesses are Destroyed Faster than they are Created

In a fast changing economy, there are a lot of factors which may lead to the shutdown of most businesses. Earlier knowledge of what works and what doesn’t, may prevent its owners from encountering failure.

Reason 1: There is not enough capital

Funds which are needed to make the business survive for the first few months should be sufficient to cover its daily expenses. Business owners should be able to estimate how long it will take before they reach the returns of their investment, and gauge how much money they are willing to part with until the business can stand on its own.Movie A Dog's Purpose (2017)

Reason 2: The manager lacks experience

Most business owners handle the company all on their own. They take the plunge without having a full understanding of what the business is all about. It would be wise to seek advice from a mentor, or from people who have spent years in the similar industry. Hence, proven risks will be avoided, something which may take a lot of time before the owner realizes it alone.

Reason 3: Investing too much on an untested product

Yes, there’s this one product that the business owner believes to be the next big thing. Sure it isn’t wrong to dream, but it may take a while before the market recognizes a new product. If the business would solely rely on an unfamiliar item to drive it to success, it would be a great gamble. Owners should test its market first, and try to find out if their prospective customers will welcome the idea before pouring all their money in.

Reason 4: Inadequate cash flow

Otherwise known as “poor cash flow”, it is a crucial problem that affects most starting businesses. As the new company struggles to pay rent, buy supplies, and continue payroll, the expenses must be balanced with a projected profit. Money should be coming in as quickly as possible to recover the early losses.

Reason 5: Improper use of business funds

The loss of expected profit consequently affects the personal lives of the business owners. Since they may not be able to pay themselves accordingly, part of the business fund may be allotted for personal expenses. This leads to the downfall of the company.

Reason 6: Poor location / Unattractive shop

One of the best ways to entice customers is to present the company’s goods and services in an interesting package. More importantly, is that these pretty packages must be sold in an area accessible to the public. However, in an attempt to save money, there are businesses who settle in less profitable locations. With poor sales, the result will be an empty shop with full shelves.

Reason 7: Unprepared for sudden growth

There are some businesses who find instant success, then suddenly realize their unpreparedness for it. To keep up with the larger demand, there are owners who tend to overstock products, not realizing that the trend may possibly fade soon. Thus, the surplus items will be sold at a bargain, resulting in loss profit. Then there are those who hasten the hiring process, in order to get additional staff on board. Doing this will eventually lower the quality of service, losing regular customers along the way.

Reason 8: Weak marketing strategy

For the owner who does not have a concrete business plan, the idea is just to advertise everywhere and wait for the customers to pour in. Someone who knows how to create the perfect product may not be able to sell it properly. It takes a smart advertising strategy to successfully spread the word to the customers.

The advertisement should expose the business to a wide market audience, but the method should be cost effective as well. One good example for this would be the use of car magnets. With this mobile advertising method, everybody in town would likely know about this new business. Whether the vehicle is parked or stuck in traffic, people will see the ad right before their eyes.