state five reasons that may make a business plan fail

Why do business plans fail?

Table of Contents

Bad product ideas

Poor partnerships , a lack of detail , unrealistic financial planning , how a simple app can help improve your business plan.

Unfortunately, not every business will be a success. The failure of businesses is usually due to some issue in their business plan, and there are hundreds of different issues a business plan could have.

This article will describe some of the most common reasons a business plan might fail and how you can avoid them. We’ll look at common pitfalls such as:

• Poor partnerships
• A lack of detail
• Unrealistic financial planning

Sometimes, a business plan fails simply because it focuses on bad product ideas. A bad product idea means that the product or service your business specialises in does not sell well, and the lack of sales leads to an income problem for your business.

Business plans containing bad product ideas usually come about due to a misunderstanding of the term ‘ unique selling point ’. A unique selling point is what makes your product stand out from the products of the competition. It’s a feature that makes the product better as well as being unique. 

Many bad product ideas come from individuals that focus too much on the ‘unique’ part of the term unique selling point. While it is important to have a different product from anything else on the market, make sure you also know what your customers want from a product .

While it’s nice to have help running your business, it’s important to find the right person for the job before you write a contract for a business partnership . If you create a business plan as a partnership and your partner fails to fulfil their responsibilities, your business will struggle to succeed.

There are three things you may want to consider if you’re trying to avoid poor partnerships. The first is your partner’s skill set: look for someone with talents related to your business idea as well as talents you don’t possess. It’s helpful to have a diverse collection of skills within your business. 

Secondly, make sure your potential partner is as passionate about the business as you are. If they aren’t, you may find that you end up doing most of the work or that they leave the business as soon as things become difficult. While measuring passion and emotional investment is challenging, finding a business partner that matches your feelings regarding your business plan is vital.

Finally, create an exit strategy. While you may have found a perfect business partner, you never know what difficulties you’ll encounter in the future. So make sure you know what to do if there is an internal conflict in your company that you can’t resolve peacefully.

When you write a business plan , you need to make sure that you plan for almost anything. One of the biggest reasons business plans fail is because they don’t account for certain situations.

It’s impossible to plan for truly unexpected problems, but a detailed business plan will account for most situations by listing off your company’s weaknesses during a SWOT analysis . SWOT stands for strengths, weaknesses, opportunities, and threats, and it’s a standard part of most business plans. 

By using SWOT to list weaknesses in your business plan and potential threats to your success, you can start planning ways to deal with problems. For instance, you might identify a lack of sales as a potential threat. To account for this, you could invest in marketing or reduce your prices. If your business plan doesn’t account for these sorts of situations, it increases its chances of failure. 

Another reason for lack of detail in a business plan is low-quality research or not performing research at all. Without researching the market and industry you operate in, you’ll struggle to learn about your competitors or understand your customers’ needs. Thorough research is an essential part of avoiding business plan failure.

Financial planning is essential in business. You might not know the future of your business, but with a decent financial plan, you’ll be able to avoid most obstacles to success. If your financial plan is poorly thought-out or unrealistic, though, it might not be as valuable.

Financial plans are all about mapping out your company’s growth. If you’re too optimistic about this growth, it can cause serious problems. Unrealistic expectations can cause unprepared businesses to go bankrupt very quickly.

For example, say you expect to be making £1,000 a week in sales revenue by your second week of business. Your financial plan relies on this for you to pay rent and buy supplies. If it gets to that week and you’re only making £500, you’ll not be able to pay the bills that allow your business to operate. 

To avoid these problems, try lowering your expectations. Even if you think you have a fantastic product idea, it’s better to prepare for the worst than plan for the best and run into trouble. If you create a conservative financial plan that expects some success but accounts for things like low sales, your business plan is much less likely to fail. 

One of the biggest parts of your business plan is the financial aspect. To create a business plan that’s unlikely to fail, you’ll need to make sure you have a good understanding of accounting and a way to track how you’re spending your money.

The Countingup app offers built-in accounting software with its business account so that you can manage all your financial data in one place. 

With additional features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here .

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Ten common causes of business failure.

Failure is a topic most of us would rather avoid. But ignoring obvious (and subtle) warning signs of business trouble is a surefire way to end up on the wrong side of business survival statistics.

What’s the survival rate of new businesses? Statistically, roughly 66 percent of new businesses survive two years or more, 50 percent survive at least four years, and just 40 percent survive six years or more. This is according to the study “Redefining Small Business Success” by the U.S. Small Business Administration.

Does Your Strategy Suck? Get this Free Guide to Find Out.

Learn how to avoid the most common pitfalls in strategic planning here .

With this information as a backdrop, we’ve put together a list of 10 common reasons businesses close their doors:

• Failure to understand your market and customers. We often ask our clients, “Where will you play and how will you win?”. In short, it’s vital to understand your competitive marketspace and your customers’ buying habits. Answering questions about who your customers are and how much they’re willing to spend is a huge step in putting your best foot forward.
• Opening a business in an industry that isn’t profitable. Sometimes, even the best ideas can’t be turned into a high-profit business. It’s important to choose an industry where you can achieve sustained growth. We all learned the dot-com lesson – to survive, you must have positive cash flow. It takes more than a good idea and passion to stay in business.
• Failure to understand and communicate what you are selling. You must clearly define your value proposition. What is the value I am providing to my customer? Once you understand it, ask yourself if you are communicating it effectively. Does your market connect with what you are saying?
• Inadequate financing . Businesses need cash flow to float them through the sales cycles and the natural ebb and flow of business. Running the bank accounts dry is responsible for a good portion of business failure. Cash is king, and many quickly find that borrowing money from lenders can be difficult.
• Reactive attitudes . Failure to anticipate or react to competition, technology, or marketplace changes can lead a business into the danger zone. Staying innovative and aware will keep your business competitive.
• Overdependence on a single customer. If your biggest customer walked out the door and never returned, would your organization be ok? If that answer is no, you might consider diversifying your customer base a strategic objective in your strategic plan.
• No customer strategy . Be aware of how customers influence your business. Are you in touch with them? Do you know what they like or dislike about you? Understanding your customer forwards and backwards can play a big role in the development of your strategy.
• Not knowing when to say “No.” To serve your customers well, you have to focus on quality, delivery, follow-through, and follow-up. Going after all the business you can get drains your cash and actually reduces overall profitability. Sometimes it’s okay to say no to projects or business so you can focus on quality, not quantity.
• Poor management. Management of a business encompasses a number of activities: planning, organizing, controlling, directing and communicating. The cardinal rule of small business management is to know exactly where you stand at all times. A common problem faced by successful companies is growing beyond management resources or skills.
• No planning. As the saying goes, failing to plan is planning to fail. If you don’t know where you are going, you will never get there. Having a comprehensive and actionable strategy allows you to create engagement, alignment, and ownership within your organization. It’s a clear roadmap that shows where you’ve been, where you are, and where you’re going next.

Running an organization is no easy task. Being aware of common downfalls in business can help you proactively avoid them. It’s a constant challenge. We know, but it’s also a continuous opportunity to avoid becoming one of the statistics.

36 Comments

This article is apt for everyone who’s planning to make a business, i admire this article so much ths more clear, understandable and realistic. I really appreciate this information, thanks for those people behind this informative thing. thumbs up!!!!!!!!!!

I have been looking at countless articles on why businesses fail. This one seems to make the most sense.

Thanks! David

Wonderful article thank to those behind this am really happy to read this article,u will be blessed in Jesus name (amen).

Awesome article

The article is very helpful and I have been assisted by it keep posting helpful thing.

I found this useful to us in Africa; especially Uganda

why is small business fail

Item number 8 is an eye opener for me thanks. More grace!

I found this useful to us in Africa; especially Uganda lol

mind opening article keep on posting

Cash flow or lack thereof is the #1 thing I evaluate when helping a company turn their business around. I am not disagreeing with any one of the 10 but unless you have enough cash you may not have enough runway to fix any one of the other 9 items to turn the situation around.

I thought I would have a look at the article and then add something that was missed as I have good understanding of these issues. Well darn and hats off Todd Ballowe. You have covered all the issues in a very tightly worded manner. Well done.

your article is good. keep on posting such important stuff. the information is helpful. thank you very much.

Right on point about why some businesses fail??

This is the richest article I have ever read while doing my research on the cause of business failure.

thank to the author, Keep up.

am very grateful about this article

The points are well put and straight to the point.

Thanks to the author we are now aware of whats causes our business to fail .

Sir/Madam! The article is fine. If you don’t mind, please specify the internal and external factors that influence a business to success or to failure. Because, in this modern world, specification i every field is appreciated. The tips are good, but quite mixed, please categorize them, thankyou

woo ,this article is awesome.I have found what i was looking for

what must a manager do to sustain a business growth?

this article is so helpful cause it contains sense why bussineses fail

Great article! Covered a lot of perspectives. Most owners believe that “knowledge is power” however they should understand that only “applied knowledge” is only the power that works! -great point. Came across a blog on Buymaster.co which really compliments and adds to this article. Take a look http://blog.buymaster.co/why-small-businesses-fail-or-fail-to-thrive/

thanks this artical is very helpful

Wow , great article. it touches an interesting field that i’m studying “Strategic management Accounting” This field seeks to involve the marketing environment with accounting as the strategy to gain sustainable competitive Advantage in the market. Thus , this articles highlights the importance of strategic tools in the market.

I am just a new comer in business, but I think this article can be a help for me.

Its a nice article but its just that we read these kind of articles only after failing in business and there are mistakes that we do again and again..as much as your articles helps me to understand the common reasons for failure I would like to point out some major reasons in my own way:

1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one

i found this article very useful , i have 40 years experiance in managing various business . thank you

Thaxs I loved the article since it opens up peoples’ minds.

Must say, this is an excellent article.

Covers the most important point in perfect details with no extra fluff.

It’s a great article and very knowledgable here are some pointers hope this could help you 1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one https://www.meshcowork.com/en/blog/read/620446883/failure-in-entrepreneurship

Thanks I have enjoyed the article ,,, very sensitive to understand especially to students who study financial management

It’s really very helpful. Thanks for sharing this amazing strategy

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10 Reasons Why Small Businesses Fail and How to Avoid Them

• March 20, 2022

Home » 10 Reasons Why Small Businesses Fail and How to Avoid Them

Small businesses can fail for many reasons, including inadequate planning, insufficient capital, and an inability to adapt to change, just for starters. Understanding the potential pitfalls can help small business owners avoid them and boost their chances of success.

According to the Small Business Administration (SBA), there were 33.2 million small businesses in the U.S. as of 2022 , with 4.2 million of those small businesses in California. And the Bureau of Labor Statistics reports in 2022 that about 20% of new businesses fail within their first year, while only 34.6% of all new businesses in 2012 managed to survive 10 years.

So, sobering statistics aside, how can you help your small business not only to survive but to grow and thrive? Read on to learn some of the most common reasons why small businesses fail and what you can do to prevent them from impacting the success of your business.

10 Reasons Why Small Businesses Fail

1. Lack of a clear business plan 2. Inadequate pricing strategies 3. Poor cash flow management 4. Resistance to change 5. Inaccurate financial records 6. Limited access to capital or credit 7. Not taking advantage of new technology 8. Poor customer service 9. Lack of resources 10. Inefficient operations

1. Lack of a Clear Business Plan

Think your business is too small to require a formal business plan? It’s a common assumption that can often spell trouble for your business from the outset.

Having a business plan that evolves with your business as it grows is essential to its success. Without a plan, it’s impossible to know what direction your business is going. It’s like driving with a blindfold and just hoping for the best. 

When you have a well-defined plan, it provides clear focus and direction for your business and allows you to make more informed decisions. This helps everyone involved to stay focused and work more efficiently and allows your business to operate more smoothly. A strong business plan can also be useful in attracting investors and obtaining financing.

2. Inadequate Pricing Strategies

When starting a business, one of the most difficult decisions is pricing your products and services . It can be tricky to strike a balance between being competitive and making a profit . 

If your prices are too high, you may miss out on potential customers who may go to a competitor that offers lower prices. On the other hand, if your prices are too low, you may be unable to cover your costs and sustain your business for the long haul.

It’s important to do your research and compare market prices to ensure you are in line with the competition and appealing to your target audience. You should also revisit your pricing strategy over time to ensure it’s still competitive and profitable.

3. Poor Cash Flow Management

Money may not be the be-all and end-all of life, but it is the lifeblood of your business. Not only should you have a solid pricing strategy in place, but you need to carefully manage how much money is coming in and going out at any given time.

To ensure that your business has enough cash flow to meet its obligations, it’s critical to stay on top of your billing and invoicing and always be aware of your numbers. This will help you avoid the risk of overspending and ensure that your business remains financially healthy and out of the red.

Also, improving your cash flow will help you plan for the future and make sure you have enough money to prepare for the unexpected . We’ve all faced some tough lessons on this front during the past few years, thanks to COVID and its ongoing impacts on the economy .

At FusePhase, we highly recommend Bill.com to our small business clients for help with managing incoming and outgoing payments. There’s nothing in it for us by recommending them — we just think they’re grand and thought you should know.

4. Resistance to Change

Flexibility is an essential part of owning a business. If you’re resistant to change, you will find yourself left in the dust by the competition and ultimately miss out on potential growth opportunities.

Make sure your business has a strong financial foundation that will allow you to respond quickly and adapt to challenges or changes in the market. Having a flexible mindset can make all the difference in a small business’s ability to survive over the long term.

5. Inaccurate Financial Records

If your books aren’t accurate and up-to-date, you can’t have a clear understanding of your financial situation. And without visibility into your finances, it can be difficult to make well-informed decisions that will benefit the long-term growth of your business.

Block out time in the calendar to devote to cleaning up your books as soon as possible. Your finances are the foundation of your business and essential to its success, so it’s critical that you don’t neglect them.

If you and your team are having trouble staying on top of managing your books on a regular basis, it may be time to seek help from a professional accounting and bookkeeping service .

6. Limited Access to Capital or Credit

Having limited access to capital or credit can make it extremely difficult for small companies to reach the next stage of growth or even keep their businesses afloat.

If you’re looking for ways to fund your business and boost its financial standing, start by getting your finances in order.

Lack of funding can prevent small business owners from taking advantage of emerging opportunities and investing in new products and services. It can also limit the ability to hire more staff and expand marketing initiatives to drum up new business.

If you’re looking for ways to fund your business and boost its financial standing, start by getting your finances in order. Tidying up your books, looking for ways to improve your cash flow, and creating a realistic budget for your business will help to lay a solid financial groundwork you can build on.

7. Not Taking Advantage of New Technology

Gone are the days of manually managing mountains of paperwork, filing documents, and storing information in physical filing cabinets. And frankly, good riddance.

Nowadays, the most successful businesses are embracing cloud-based technology to help them run their operations more efficiently and streamline their processes. This technology provides a more organized and secure way to store and manage data, helping businesses save time and money. 

Nowadays, the most successful businesses are embracing cloud-based technology to help them run their operations more efficiently and streamline their processes.

Better yet, the cloud also enables them to access their data from anywhere, anytime, allowing them to stay connected and informed. All in all, cloud-based technology has revolutionized the way businesses operate and has enabled them to become more successful.

8. Poor Customer Service

The best way to promote your business and its growth is to keep your customers happy. When your customers are happy, they will spread the word about your business and help to draw in more customers.

It’s essential to dedicate enough time, energy, and resources to give your customers the care and attention they need. Investing in customer service, providing quality products and services, and giving customers an overall positive experience are all ways to turn them into brand ambassadors . Doing so will help to ensure the success and growth of your business in the long run.

9. Lack of Resources

Running a business is not for the faint of heart. It seems there is never enough time, money, or qualified help to go around. Having an endless to-do list with limited resources can really stunt the growth of your business and keep it from reaching its full potential.

Also, finding and retaining qualified help can be a difficult endeavor, as there may not be enough funds to pay competitive wages or enough time to properly train and manage in-house employees.

From cloud-based technology to on-demand experts for hire to help fill personnel gaps, business owners have more user-friendly options than ever to help streamline their operations, improve efficiency, and better use their resources. With the right tools and strategies in place, business owners can take advantage of these solutions designed specifically with small businesses in mind and maximize their potential for growth.

10. Inefficient Operations

Streamlining your business operations can help you become more productive, efficient, and cost-effective. This can lead to increased profits and allow your business to scale more rapidly.

More efficient operations can also help you deliver more consistent, timely service to your customers. Happy customers will help any business to grow and thrive!

Take the time to analyze your current operations and identify ways to reduce costs and make processes more efficient. Invest in technology and automation to help reduce manual labor, and look for ways to eliminate unnecessary steps or redundancies. 

Additionally, consider taking advantage of outsourcing services or partnering with other businesses to help with areas where you may need additional expertise or resources.

Read more: How to Make Your Business More Efficient

Set Your Business Up For Success

If you feel your business is stuck in a rut and on the road to failure, don’t give up too soon! You have resources available to you to help you get your business back on the right track.

A good place to start is to identify and address any issues that might be hindering the success of your business, and our team of finance and accounting experts at FusePhase can help. Whether it’s organizing your finances, establishing a business plan, or addressing operational inefficiencies — we’ll work with you as your partners to help your business become more successful.

Ready to get your business on track for more growth and profitability? Contact us today to discuss your options!

This article was originally published on March 20, 2016, and has since been updated for accuracy and relevancy.

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5 Most Common Money Mistakes To Avoid For Your Business

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1. Financing Hurdles

2. inadequate management, 3. ineffective business planning, 4. marketing mishaps.

• Small Business Failure FAQs
• Small Business
• How to Start a Business

The 4 Most Common Reasons a Small Business Fails

Running a small business is not for the faint of heart

Running a business is not for the faint of heart; entrepreneurship is inherently risky. Successful business owners must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.

While there are a number of small businesses in a broad range of industries that perform well and are continuously profitable, about 33% of small businesses fail in the first two years, around 50% go belly up after five years, and roughly 33% make it to 10 years or longer, according to the Small Business Administration (SBA) .

To safeguard a new or established business, it is necessary to understand what can lead to business failure and how each obstacle can be managed or avoided altogether. The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

Key Takeaways

• Running out of money is a small business’s biggest risk. Owners often know what funds are needed day to day but are unclear as to how much revenue is being generated, and the disconnect can be disastrous.
• Inexperience managing a business—or an unwillingness to delegate—can negatively impact small businesses, as can a poorly visualized business plan, which can lead to ongoing problems once the firm is operational.
• Poorly planned or executed marketing campaigns, or a lack of adequate marketing and publicity, are among the other issues that drag down small businesses.

A primary reason why small businesses fail is a lack of funding or working capital . In most instances a business owner is intimately aware of how much money is needed to keep operations running on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses, such as rent and utilities; and ensuring that outside vendors are paid on time; however, owners of failing companies are less in tune with how much revenue is generated by sales of products or services. This disconnect leads to funding shortfalls that can quickly put a small business out of operation.

A second reason is business owners who miss the mark on pricing products and services. To beat out the competition in highly saturated industries , companies may price a product or service far lower than similar offerings, with the intent to entice new customers.

While the strategy is successful in some cases, businesses that end up closing their doors are those that keep the price of a product or service too low for too long. When the costs of production, marketing, and delivery outweigh the revenue generated from new sales, small businesses have little choice but to close down.

The Small Business Administration (SBA) helps small businesses find loans for different needs, offering a variety of loan programs.

Small companies in the startup phase can face challenges in terms of obtaining financing in order to bring a new product to market, fund an expansion, or pay for ongoing marketing costs. While angel investors, venture capitalists, and conventional bank loans are among the funding sources available to small businesses, not every company has the revenue stream or growth trajectory needed to secure major financing from them. Without an influx of funding for large projects or ongoing working capital needs, small businesses are forced to close their doors.

To help a small business manage common financing hurdles, business owners should first establish a realistic budget for company operations and be willing to provide some capital from their own coffers during the startup or expansion phase.

It is imperative to research and secure financing options from multiple outlets before the funding is actually necessary. When the time comes to obtain funding, business owners should already have a variety of sources they can tap for capital.

Another common reason small businesses fail is a lack of business acumen on the part of the management team or business owner. In some instances, a business owner is the only senior-level person within a company, especially when a business is in its first year or two of operation.

While the owner may have the skills necessary to create and sell a viable product or service, they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees. Without a dedicated management team, a business owner has greater potential to mismanage certain aspects of the business, whether it be finances, hiring, or marketing.

Most small businesses start out with the entrepreneur's savings or money from friends and family and then look for outside financing to grow.

Smart business owners outsource the activities they do not perform well or have little time to successfully carry through. A strong management team is one of the first additions a small business needs to continue operations well into the future. It is important for business owners to feel comfortable with the level of understanding each manager has regarding the business’ operations, current and future employees, and products or services.

Small businesses often overlook the importance of effective business planning prior to opening their doors. A sound business plan should include, at a minimum:

• A clear description of the business
• Current and future employee and management needs
• Opportunities and threats within the broader market
• Capital needs, including projected cash flow and various budgets
• Marketing initiatives
• Competitor analysis

Business owners who fail to address the needs of the business through a well-laid-out plan before operations begin are setting up their companies for serious challenges. Similarly, a business that does not regularly review an initial business plan—or one that is not prepared to adapt to changes in the market or industry—meets potentially insurmountable obstacles throughout the course of its lifetime.

To avoid pitfalls associated with business plans, entrepreneurs should have a solid understanding of their industry and competition before starting a company. A company’s specific business model and infrastructure should be established long before products or services are offered to customers, and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.

Business owners often fail to prepare for the marketing needs of a company in terms of capital required, prospect reach, and accurate conversion-ratio projections. When companies underestimate the total cost of early marketing campaigns , it can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall.

Getting your company's name in front of your customers is a crucial aspect of any early-stage business. It is necessary for companies to ensure that they have established realistic budgets for current and future marketing needs.

Similarly, having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success. Businesses that do not understand these aspects of sound marketing strategies are more likely to fail than companies that take the time to create and implement cost-effective, successful campaigns.

What Is the Small Business Failure Rate?

Approximately 33% of small businesses fail in the first two years, 50% fail within five years, and 33% make it to 10 years and further.

What Are Some Signs That Your Business Is Failing?

Signs that a business is failing include small levels or lack of cash, inability to pay back loans on time, inability to pay suppliers on time, customers that pay late, loss of clientele, and an unclear business strategy.

Small Business Administration. " Frequently Asked Questions ," Page 2.

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20 reasons why small businesses fail and how to avoid them.

The failure rate of small businesses is significant—as many as 45% of start-ups don’t survive the first 5 years [1]. So why do so many businesses fail? The primary causes of business failure are cash flow problems, poor financial planning, and a lack of market awareness.

We’ll explore 20 reasons why small businesses fail so you can avoid common pitfalls and develop a strategy to help your business grow and thrive.

Key Takeaways 

• Most small businesses fail within the first 10 years.
• Common financial reasons include poor pricing strategies, insufficient funds, and cash flow.
• Creating a clear business plan can help small business owners avoid common failures.
• Understanding your target market is key to creating a good business strategy.

Table of Contents

• Lack of Planning
• Choice of Location
• Lack of Research
• No Business Plan
• Poor Pricing Strategy
• Insufficient Funds
• Cash Flow Problems
• Poor Debt Management
• Dependence on One Customer
• Inadequate Profit
• Competition
• Lack of Market Demand
• Unexpected Growth
• Lack of Experience
• Ignoring Customer Needs
• Poor Management
• Ineffective Marketing
• Lack of Innovation
• Forgetting the Customer
• Ineffective Leadership
• Frequently Asked Questions

1. Lack of Planning

A clear vision is key to successfully running your small business. Start by setting research-backed goals for your company: what benchmarks do you want to reach in your 1st year? In your 5th year?

Setting timelines helps you keep on track with your goals and helps you make adjustments if you find you’re not where you want to be. Create a strategy for your business growth and set up check-in points. 

For example, check in every 2 months to make sure you’re on track to reach your goals. This gives you a chance to follow up with what’s working well and change anything that needs to be modified to help you stay on track.

2. Choice of Location

Business location is one of the most important decisions you can make when setting up a new small business. If you provide in-person goods or services, you need to make sure that there’s enough local demand to support your business. 

Businesses like bakeries and shops often rely on foot traffic for success, so visibility is key. Other industries like lawn care require you to commute to your customers, so you’ll want to pick a central location to minimize transportation costs.

If you offer remote services, location is still important—if you have some flexibility, consider how business taxes vary between states and municipalities. 

It’s also important to consider how you might expand in the future. If you see yourself opening up a second location, look for an area that has room to accommodate your future business growth. 

3. Lack of Research

Understanding your industry, competitors, and target market is key to business success and survival. Research common pitfalls in your industry so you can understand the specific challenges your company might face.

It’s also important to learn about your competitors. See how your services and prices compare to theirs, and consider whether you can offer any niche contributions to set your business apart.

Learn what customers are looking for from your company so you can deliver tailored experiences. Some demands are evergreen (constant), while others vary with market trends—research can help you determine and predict market trends so you can stay on top of your customers’ needs.

4. No Business Plan

In addition to your overall vision for your company, you’ll need to create a clear and actionable business plan. This helps communicate your vision to investors and other team members. There are many resources available to help you create a business plan, including business plan templates .

Your business plan should include:

• A description of your company and what you offer
• A market analysis including threats and opportunities
• Competitor analysis
• Marketing plan, including target customer profile
• Budget and projected cash flow
• Scalable growth plan

You’ll want to regularly revisit this business plan and review the success of each strategy. If you find anything that’s not serving your business, catching that early and making the right adjustments can be the difference between failure and success.

5. Poor Pricing Strategy

Setting the right price is a delicate challenge, but it’s essential for surviving as a small business. You need to price high enough that you cover your costs and make a profit, but low enough that it’s still accessible to a large customer base.

Start by understanding the costs involved in delivering your product or service. Calculate all the materials and labor costs, then factor in your profit margin .

Next, compare your prices against competitors. When you first start out, you may not be able to match the prices and profits of more established companies. If you find your prices are significantly higher, you might need to decrease your profit margin slightly. 

Remember that even if you can’t exactly match your competitors, there are other strategies you can use to distinguish your business—competitor prices are a guideline, not a hard rule.

6. Insufficient Funds

Financing is a common challenge for new businesses, and it’s important to ensure you have sufficient funds right from the start. There are a range of financing options you can consider, from small business loans to investor support. Research all your options and compare how they’ll support you in the short and long term.

It’s also important to effectively manage your finances once you’ve acquired start-up capital . Make sure you understand all of your business costs including licenses, materials, taxes, and labor. Balance that against your projected profits to make sure you’ll be able to stay operative through the first few challenging years.

7. Cash Flow Problems

Financial management isn’t just about the big picture—it’s also about the way your business spends cash in day-to-day business operations. Make sure you keep track of all the ways your company spends money, from larger costs like rent and labor to everyday transportation costs.

It’s easy to get caught up in things like marketing and product development and run out of cash flow early on. Make sure you have a clear budget that you review regularly to ensure you have sufficient cash flow to manage your business.

8. Poor Debt Management

There’s more to small business financing than just start-up capital and cash flow: you’ll also want to stay on top of any debt and ensure your credit remains strong. If not managed carefully, these challenges can easily spiral out of control and sink a small business.

It’s not uncommon for new entrepreneurs to assume some debt as a new business—you might have taken a start-up loan as part of your initial process. However, that debt can become problematic if you’re not making enough profit to consistently make your payments.

One of the most common signs of impending debt issues for small businesses is delaying bill payments. If you find that your business is struggling to meet bills, debt , or credit card payments, it’s time to do a close examination of your finances and cash flow to see where you might be able to cut costs and get on top of any financing issues before they become a larger problem.

9. Dependence on One Customer

Building customer relationships is important, but it can be risky to become too reliant on just one customer. Even if that customer represents a large share of your current profit, there’s never a guarantee that they’ll be able to sustain your company.

Once you’ve found a great customer, analyze how you won that customer and see how you can apply those strategies to finding new customers. Consider what that client was looking for and how they found your company so you can understand what worked well in your next marketing campaigns .

Build a customer profile and focus your marketing on reaching clients who fit that profile. See if they tend to live in a certain area, frequent a certain job or social media platform, or search for particular keywords. Try to diversify your customer base so you aren’t reliant on just one client for your business survival. 

10. Inadequate Profit

Most small businesses have low profits in their first few years, but there’s a point where those profits can become too low to survive. If you find that your profits aren’t enough to cover your expenses , it’s time to think about profit maximization strategies.

One of the first things to examine when you’re facing inadequate profit is your current cost management. Are there any areas where costs can be cut? Consider whether there are more affordable manufacturers, equipment options, or business spaces available to you.

You can also examine your pricing strategies. If you start by pricing low and you’re selling a large volume but still not making a good profit, your prices may be priced too low. Calculate how much you would have to raise your prices to make enough profit, and test out slightly higher prices to see how customers respond.

11. Competition

Even if you offer great products and services, it can still be hard to survive if you’re facing a lot of competition. Conduct a market analysis to see how many competitors are in your industry and area, what products they offer, and how their prices compare to yours.

Once you have a thorough understanding of your competitors, you can devise strategies to set yourself apart. This can include everything from offering competitive prices to providing a higher-quality product. You can also explore marketing strategies or consider how you can offer a slightly different product to fill a market niche.

12. Lack of Market Demand

Even the best businesses can fail if there’s no demand for their product. Market demand also fluctuates, so what’s in demand today can change by tomorrow. Keeping track of market trends and demand can help you stay ahead of the curve with what your company offers.

Start by assessing what’s currently in demand and how you can pitch your product to meet that demand. As customer needs evolve, you may need to slightly alter your products to adapt to changing customer needs.

13. Unexpected Growth

Growing your business is a hallmark of success, but it can also pose risks if you expand too rapidly without a clear plan. Unexpected growth can lead to over-extending your resources, overworking employees, and losing track of customers.

To prevent fallout from unexpected growth, it’s essential to have a scalable business plan. Make sure you can still deliver high-quality goods and services as you expand, so your customers stay satisfied. Keep track of how much money and labor you’re expending on new services so you can bring on new employees as you grow.

It’s all about striking a balance—you want to make sure you hire enough talent to keep up with growth but avoid hiring too early in case your growth slows down. Tracking your expenditures in relation to growth is the best way to create a plan for the future.

14. Lack of Experience

Successful business owners need vision and passion, but they also need experience to translate into their goals into a successful company. Lack of experience and industry knowledge can hold your business back, so it’s important to build a dedicated management team with a thorough understanding of the market.

A business mentor can help you manage the small business owner aspects of your company. Look for someone with experience managing their own business who can advise you on things like developing a business plan , hiring the right talent, and pitching to investors. 

It’s also important to bring on experts in your industry. Look for experienced financial advisors who can guide you through developing your financial strategies. You’ll build experience as you grow, but it’s a good idea to bring in experts for specific jobs like marketing and accounting.

15. Ignoring Customer Needs

The best source for understanding market demand is customers themselves. Responding to feedback helps you build strong relationships with your existing customers and helps you understand what you need to do to gain more customers.

Listen to customer feedback on pricing, services, accessibility, and any other concerns they may have. In some cases, you may not be able to accommodate every suggestion, but it’s helpful to respond and then do a cost-benefit analysis and see how making the recommended changes might impact your business.

If you feel like you’re not receiving customer feedback, consider reaching out. Comment and feedback forms after a completed order can be a helpful tool for gaining market analysis in real-time.

16. Poor Communication

Having a clear vision that you can communicate to investors and customers is important, but it’s just as key to having strong communication inside your business. When your team doesn’t understand your business goals, it’s harder for everyone to collaborate efficiently. 

If you’re operating your small business as a partnership, it’s fine to have different skill sets, but you need to be on the same page about vision and goals. Creating a business plan collaboratively can help ensure you agree on the primary strategies for your company.

Weak communication can lower morale and productivity and prevent your business from growing effectively. Consider making a modified version of your business plan that you can share with your employees. This can include an overview of your business goals and strategies to help everyone get on the same page.

17. Ineffective Marketing

Even with great products, your business can’t succeed unless you effectively reach your target market. Ineffective marketing strategies can hold you back from connecting with customers, while great marketing helps you reach new audiences and grow your business.

It’s important to have a targeted campaign with a clear focus. Start by identifying your target customers and learning about how they interact with local businesses. This helps you determine where to place ads, what to offer, and how to speak to potential customers.

Make sure your marketing strategy has a way to track results. That could include tracking impacts and clicks, measuring follow-through, and consulting with new customers to discover how they found your business so you can build on your most effective strategies.

18. Lack of Innovation

A great product at the start of your business may not remain competitive as the market changes. Innovation is essential for ensuring your business stays relevant and continues to be successful. 

This doesn’t mean you have to drop products if they’re still performing well, but it’s a good idea to consider how you can improve or develop new products if you have the capital to spend on development. This helps you stay ahead of the curve in a changing market.

Even with evergreen products, your business practices can still become stagnant. You’ll need to find new marketing strategies to reach new customers so that you can have a continuous revenue stream. Innovation spans all components of your business, from product development to new marketing methods.

19. Forgetting the Customer

Even if a product seems great to you, remember that in the end, it’s about the customer and how the product will meet their needs. Focus on learning about what the customer is looking for—what’s missing from current products, and how can your business satisfy that need.

If customers offer feedback, try to learn from that and incorporate it where possible. This can involve product innovation or customer service relationships. Customers will remember a great product, but they’ll also remember a personable and helpful business interaction.

Check-in with customers to make sure they’re fully satisfied with their experience. One way to do this is to send a follow-up email or form after their purchase. You can incentivize feedback by offering a small discount for filling out the form—this also encourages customers to return to your business.

20. Ineffective Leadership

While a great team and expert advice are important in supporting your business, it’s ultimately up to you to lead your company forward. If you’re burnt out or losing track of your vision, your team won’t know where to follow.

Strong leadership helps cultivate a positive company culture, a motivated team, and great client relationships. Your employees take their cue from you, so make sure to set a strong model for interacting with customers. 

Creating a good company culture starts with forging strong employer-employee relationships. Get to know your employees, their goals, and their challenges at work so you can help them perform their best. When you create a work environment that’s supportive and growth-oriented, it encourages your team to deliver their best work and help build your business.

The reasons why small businesses fail can include everything from poor pricing strategies to ineffective marketing. Learning how to recognize problems like poor management and inexperience can help you identify issues in your company before they impact your success.

Understanding and recognizing why small businesses fail can help you create strategies to avoid common pitfalls. Tools like FreshBooks accounting software can also help you manage your expenses and avoid problems like insufficient cash flow. Try FreshBooks free to discover an easy tool to help your small business thrive.

FAQs on Reasons Why Small Businesses Fail

Is it true that 90% of startups fail.

Yes, ultimately about 90% of startups fail. A few fail in the first year, and most new businesses fail in the first 2 to 5 years. After 5 years, businesses that survive tend to see a small rise in profits and growth.

Why are small businesses declining?

Some of the biggest reasons why small businesses decline are market competition, lack of demand, and lack of financing. In many cases, larger and more established companies make it difficult for new small businesses to enter the market.

What is the biggest problem facing small businesses today?

One of the biggest problems currently facing small businesses is inflation. High inflation rates mean higher input costs for products, and usually also mean employees will seek higher salaries. It can also mean higher interest rates when trying to secure a first business loan.

Why are small businesses failing in today’s economy?

Many small businesses are failing in today’s economy because they lack planning and financial preparation. While market competition and funding pose challenges to business owners, these can be overcome with financial preparedness and a clear business plan.

Sandra Habiger, CPA

About the author

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.

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Start » strategy, 5 reasons small businesses fail (and how to avoid them).

Small businesses are on the rise, yet many of them fail within a year. Find out what preventatives are needed to avoid becoming a statistic.

Small businesses are the foundation of our economy. According to data compiled by the U.S. Small Business Administration , in 2022, small businesses comprised more than 99% of all American businesses. However, launching and maintaining a small business is not easy. According to the Bureau of Labor Statistics , 20% of new businesses close within their first year.

Understanding basic business fundamentals and common reasons behind small business failure can help you avoid those mistakes and increase your chances of success.

Lack of planning

A business plan is a document that outlines important information regarding operations, goals, and finances, serving as a guide for measuring progress and making necessary adjustments. Your plan should be well-developed long before products and services are available to customers. Failing to do so can leave your business unprepared to navigate market challenges.

When writing a business plan , include the following:

• An executive summary of your business and a clear company description.
• Information regarding your company’s organization and management structure.
• The products and/or services you will offer.
• Marketing and sales strategies.
• Financial projections for your business, as well as any funding requests.
• An appendix with necessary sources and additional information.

When crafting your business plan, highlight how you will attract and retain your customer base, what makes your company original, and the sales process. Once complete, review your plan regularly and update it when needed to ensure it remains relevant.

Financial challenges

Financial challenges are hard to avoid, and they can make it difficult for your business to flourish and remain profitable. Limited funding or inconsistent cash flow, combined business and personal finances, and issues with budgeting or establishing prices are common financial issues a small business may encounter.

Entrepreneurs should understand various funding options , such as traditional loans, personal loans, microlenders, crowdfunding, and investors. Depending on what stage your business is in, some sources of funding — including a combination of sources — may be more appropriate than others.

Once you’re funded, learn how to manage and track your finances . Having a clear understanding of where your money goes is essential for ongoing success.

[Read more: Cash Flow: What It Is, Why It Matters, and How to Maintain It ]

Budgeting for branding and marketing expenses is vital to the health of your business.

Poor employee management

A poorly managed business can lead to serious ramifications, hindering a company’s chances of success. Bad employee management is harmful to the health of the business and to the employees. It can lead to excessive turnover, stress and anxiety, reduced engagement, and overall poor bottom-line results.

Enhancing employees’ sense of autonomy, competency, achievement, and belonging are great methods to boost morale , build loyalty, and reduce turnover. Management should be trained regularly to build and enhance leadership skills — including providing feedback and recognition to employees to show appreciation for their performance and efforts.

Inadequate marketing

Budgeting for branding and marketing expenses is vital to the health of your business. It can be costly and ineffective if your small business has no branding and marketing direction or strategy, fails to attract customers, or even turns them away.

Identify and understand your market segment and determine how you want to approach potential customers. Test your marketing strategy by creating relevant content and campaigns. Finally, develop a plan to measure the success of your marketing efforts — including tracking metrics like overall website traffic, email open rates, and cost per engagement — and then adjust as needed.

[Read more: 5 Marketing Strategies to Embrace in 2023 ]

Failure to adapt to market changes

Adaptability is essential to keeping up with our ever-changing cultural and economic needs. Because change is unavoidable, business owners must avoid becoming complacent and adjust to market changes for longevity.

Some strategies to adapt to an ever-changing market include:

• Hiring creative and forward-thinking employees who understand and believe in your mission.
• Create a positive work environment providing opportunities for growth and development.
• Staying on top of market changes by conducting research and paying attention to what’s hot, trending, and relevant.
• Knowing your target audience, their needs, and their behaviors, as well as how they may change over time.
• Staying current with technology, and making sure what you are implementing benefits your brand.
• Continuously assess whether your products or services are outdated and decide if improvements — or even an entirely new product — are needed.

[Read more: 5 Qualities Successful Small Businesses Have in Common ]

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Why Do Some Businesses Fail?

Small business owners must mitigate company-specific risks while also bringing a complete product or service to market at a competitive price point for their target customer base. There are also cash flow strategies to navigate, employees to hire, invoices to pay, and many other considerations that go into running a successful business.

Managing these details can be especially daunting for startup business owners. Small businesses across a broad range of industries obviously perform well and maintain profitability, yet 18% of small businesses fail within their first year and 50% go out of business within five years. Approximately 65% of small businesses don’t make it to their 10 th year in business. [1]

Once any financial, personal, market, competitive and/or operational risks are addressed, small business owners can enjoy the unique rewards of entrepreneurship. Those benefits range from unlimited income-producing opportunities, the ability to “be your own boss,” and the pride of ownership that comes with building your own company.  

5 Reasons Small Businesses Fail

To best prepare for the rigors of starting and running a sustainable business, entrepreneurs should be aware of the potential risks, determine which of them are most relevant to their own personal situation and then plan accordingly. Here are five reasons why most small businesses fail and some advice on how to avoid these risks:    

• Lack of a solid business plan. Ben Franklin once said, “If you fail to plan, you are planning to fail,” and nowhere is this more evident than in the business arena. In fact, the National Federation of Independent Business (NFIB) says companies that put a plan in place early stand the best chance of success. Entrepreneurs use their business plans to outline their goals and objectives, secure funding, identify their potential markets, and track progress and adjust accordingly. “It’s common for new entrepreneurs to start a business related to their expertise and previous employment, or a favorite passion, pastime, or hobby,” the NFIB says. “But detailed market research and a thorough evaluation of your competitors must be done during the planning process, and businesses must be prepared to adapt to market changes on the fly.” [2] At a bare minimum, the plan should include an executive summary, description of the business, marketing strategy, and financial projections.
• They can’t find the startup or growth funding that they need. According to Skynova®, an invoice template provider, half of all startups failed in 2022 due to insufficient funding or investor interest. “Nearly as many business owners simply ran out of cash,” the company says. [3] The NFIB concurs, and says that a lack of startup funds—or, being unable to come up with adequate financing—are both common reasons for business failure. “If you lack the cash or assets to start on your own, like most businesses, you will need to borrow,” it says.    
• Poor cash flow. According to SCORE [4] , 82% of all small businesses fail due to cash flow problems. When money gets tight, paying yourself, your bills, the payroll and other financial obligations can be extremely difficult. This is why companies of all sizes keep a close eye on cash flow, or the net cash and cash equivalents currently flowing both in and out of your business. SCORE’s strategies to avoid cash flow problems include developing a minimum viable budget, protecting your credit (i.e., in case you need a loan to cover the bases when money gets tight), effectively managing your inventory (for product companies), and maintaining cash reserves for lean times. 
• Inadequate management. It’s not at all unusual for a small business to be run by the same person who envisioned the idea, opened the company, and then worked hard to nurture and grow the entity over time. Along the way, that person probably wore a lot of hats: owner, manager, accountant, marketer - the list goes on. Unfortunately, this “chief, cook, and bottle washer” mindset can lead to one more reason why small businesses fail: lack of good leadership and management. “While the owner may have the skills necessary to create and sell a viable product or service, they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees,” Investopedia points out. “Without a dedicated management team, a business owner has greater potential to mismanage certain aspects of the business, whether it be finances, hiring, or marketing.” [5]  
• Sometimes life just gets in the way. This “soft” risk that may not always show up on a business survey or report can impact a business’ lifespan. Because small business owners spend much of their time and effort on their companies, life-changing events like health problems, divorce, a new addition or a death in the family may adversely impact the business itself. In fact, when No Joke Marketing’s Michael Tasner asked over 100 entrepreneurs why their businesses failed, nearly 70% of them said their companies hurt their personal lives, or the other way around. To mitigate this risk, he suggests matching your business to your unique personality (e.g., he built a lifestyle marketing agency and designed its growth strategies around his lifestyle). He avoided trading off business success for life’s important experiences and garnered moral support from other business owners who may be dealing with similar issues or challenges. “Connect with like-minded people and share your personal and professional trials and tribulations,” Tasner adds. [6]   

When you know what small business owners have gone through to keep their companies afloat and headed in the right direction, you can better plan your own path to success. By understanding the financial, planning, and even the personal complexities associated with business ownership, you’ll be better prepared to tackle the challenges head-on, move past them, and increase your odds of long-term success.  

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Important Legal Disclosures and Information

1. Chamber of Commerce Team, Small Business Statistics, https://www.chamberofcommerce.org/small-business-statistics/  

2. NFIB, Why Do Small Businesses Fail?, March 20, 2017, https://www.nfib.com/content/resources/start-a-business/why-do-small-businesses-fail/#:~:text=Common%20reasons%20for%20failure%20include,selection%2C%20or%20even%20bad%20employees.  

3. Skynova, Why startups failed in 2022, https://www.skynova.com/blog/top-reasons-startups-fail  

4. Sutter, Brian, SCORE, The #1 Reason Small Businesses Fail - And How to Avoid It, https://www.score.org/resource/blog-post/1-reason-small-businesses-fail-and-how-avoid-it  

5. Horton, Melissa, Investopedia, The 4 Most Common Reasons a Small Business Fails, https://www.investopedia.com/articles/personal-finance/120815/4-most-common-reasons-small-business-fails.asp  

6. Tasner, Michael, Entrepreneur, 3 Reasons That Might Cause Your Small Business to Fail, and What to Do About Them, https://www.entrepreneur.com/leadership/3-reasons-that-might-cause-your-small-business-to-fail-and/374577 

These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions. This site may provide reference to Internet sites as a convenience to our readers. While PNC endeavors to provide resources that are reputable and safe, we cannot be held responsible for the information, products or services obtained on such sites and will not be liable for any damages arising from your access to such sites. The content, accuracy, opinions expressed and links provided by these resources are not investigated, verified, monitored or endorsed by PNC.

PNC is a registered mark of The PNC Financial Services Group, Inc.

6 Reasons Why Small Businesses Fail and How to Avoid Them

7 min. read

Updated October 29, 2023

Roughly 20% of small businesses fail in their first year, according to recent U.S. Bureau of Labor Statistics data . About 50% fail in the first five years, and only one-third of new businesses are able to survive for 10 years. Research by the Small Business Administration found that about 1 in 12 businesses close in America every year.

If you’re a small business owner, another way to think about these statistics is that 80% of small businesses will survive their first year. Over five years, you have a roughly even chance of survival or failure. Looking out 10 years, you have a one-in-three chance of enduring.

What are the reasons businesses fail to thrive, given a 50/50 chance of survival and assuming a product or service for which there’s a demand? Let’s discuss six reasons businesses fail and some ways you can avoid business failure.

• 1. Leadership Failure

Your business can fail if you exhibit poor management skills, which can be evident in many forms. You will struggle as a leader if you don’t have enough experience making management decisions, supervising a staff, or the vision to lead your organization.

Perhaps your leadership team is not in agreement on how the business should be run. You and your leaders may be arguing with each other publicly, or contradicting each other’s instructions to the staff. When problems requiring strong leadership occur, you may be reluctant to take charge and resolve the issues while your business continues to slip toward failure.

How to Avoid Leadership Failure: Dysfunctional leadership in your business will trickle down and affect every aspect of your operation, from financial management to employee morale, and once productivity is hindered, failure looms large on the horizon.

Learn, study, find a mentor, enroll in training, conduct personal research—do whatever you can to enhance your leadership skills and knowledge of the industry. Examine other business and leadership best practices and see which ones you can apply to your own.

2.  Lacking Uniqueness and Value

You may have a great product or service for which there is strong demand, but your business is still failing. It may be that your approach is mediocre or you lack a strong value proposition. If there’s strong demand, you probably have a lot of competitors and are failing to stand out in the crowd.

How to Avoid Value Proposition Failure: What sets your business apart from competitors?  How do you conduct business in a way that is totally unique? What are your competitors doing better than you are? Develop a customized approach or service package that no one else in your industry is using so you can present it as a strong value proposition that attracts attention and interest.

This is how you build a brand . Your brand is the image your customers recognize and associate with your business. Your brand identity, including your logo, tagline, colors, and all the visible aesthetics and business philosophies that represent your company should be supported by your value proposition. It should separate you from the pack and present your individual perspective to your customers. Do everything you can to present that unique value proposition to your market so you can capture a market share and begin building your conversion rates.

To publicize your brand and set yourself apart, you will also need to step up your marketing plan and use as many venues as possible to present your brand to the public. You may be far better than your competitors but that won’t make any difference if your prospects don’t even know you’re in the game. Use social media, word of mouth, cold calling, direct mail, and other tried-and-true marketing techniques. Ensure you have a well-optimized online presence, develop lead generation and contact information capture techniques such as offering high-quality content on your site, a subscriber newsletter, and information giveaways.

3.  Not in Touch with Customer Needs

Your business will fail if you neglect to stay in touch with your customers and understand what they need and the feedback they offer. Your customers may like your product or service but, perhaps they would love it if you changed this feature or altered that procedure. What are they telling you? Have you been listening? Or is the market declining? Are they even still interested in what you’re selling? These are all important questions to ask and answer. Maybe you’re offering a product or service that is fallen well below trend.

How to Avoid Losing Touch with Customers: A successful business keeps its eye on the trending values and interests of its existing and potential customers. Survey customers and do market research and find out what their interests are and keep abreast of changes and trends using customer relationship management (CRM) tools. Effective use of CRM can help keep your business from failing.

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4.  Unprofitable Business Model

Akin to leadership failure is building a company on a business model that is not sound, operating without a business plan , and pursuing a business for which there is no proven revenue stream. The business idea may be good but failure may come in the implementation of the idea if there are no strategic guidelines in place.

How to Build a Good Business Model: Research and review the way other businesses in the industry operate. Develop a complete business plan that includes financial forecasting based on predictable revenue, strategic marketing, and challenge management solutions to overcome potential obstacles and competitor activities. Create a milestone chart with specific tasks and objectives assigned along the timeline so you can measure success, solve problems as they occur, and stay on track. A sound business model that incorporates best practices can help your business avoid failure.

5.  Poor Financial Management

SmallBizTrends.com, a business news resource, offers this infographic which states that 40 percent of small businesses make a profit, 30 percent come out even, and the remaining 30 percent lose money.

You must know, down to the last dime, where the money in your business is coming from and where it’s going in order for your business to succeed. Your business can also fail if you lack a contingency funding plan, a reserve of money you can call upon in the event of a financial crisis. Sometimes people start businesses with a dream of making money but don’t have the skill or interest to manage cash flow , taxes, expenses, and other financial issues. Poor accounting practice puts a business on a path straight to failure.

How to Avoid Financial Mismanagement: Use professional business accounting software like QuickBooks or Xero to keep records of all financial transactions, including every expenditure and all revenues received, and use this information to generate income statements (profit and loss statements). Even better if you use a business dashboard tool like LivePlan that makes it easy to monitor your financials. This is valuable information that you need to run your business, know where you stand at all times, and keep it operating in the black. If you lack skill in financial management, consider hiring a small business advisor and professional bookkeeper or certified public account to help manage your financial affairs.

6.  Rapid Growth and Over-expansion

Every now and then a business startup grows much faster than it can keep up with. You open a website with a trending product and suddenly you are inundated with orders you are not able to fill. Or perhaps the opposite is true. You are so convinced that your product is going to take the world by storm that you invest heavily and order way too much inventory and now you can’t move it. These are both additional paths to business failure.

How to Avoid Growth and Expansion Problems. Business growth and expansion take as much careful and strategic planning as managing day-to-day operations. Even well-established and successful commercial franchises such as fast-food restaurants and convenience stores conduct careful research and planning before opening a new location. They measure local and regional demographics and spending trends, future development plans for the area, and other pertinent issues before they move forward. You must do the same for your business to avoid failure.

Conduct thorough research to ensure the time is right and the funding is available for expansion. Make sure the initial business is stable before expanding to an additional location. Don’t order inventory you’re not sure you can sell but have a plan already in place to fill orders quickly should the demand present itself. The key to successful growth and expansion—and avoiding business failure—is strategic planning.

• Avoiding business failure starts with planning

If 50% of new businesses fail, then 50% of new businesses can succeed. Starting a business is an exciting endeavor that requires a clearly defined product or service and a strong market demand for it. Whether you desire to start a new business or you’re already running a business, you must understand that success depends on careful strategic planning and sound fiscal management that begin prior to startup and continue throughout the life of the business.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Mike Kamo is the VP of marketing for Strideapp. Stride is a Cloud-based CRM and mobile app that helps small- to medium-sized agencies manage and track leads, as well as close more deals.

Table of Contents

• 2.  Lacking Uniqueness and Value
• 3.  Not in Touch with Customer Needs
• 4.  Unprofitable Business Model
• 5.  Poor Financial Management
• 6.  Rapid Growth and Over-expansion

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Five Reasons Small Businesses Fail (and five ways to overcome pitfalls!)

Posted June 21, 2022 by The Peregrine Team

Starting a business is not for the faint of heart. It requires a lot of hard work, time, and money and sometimes feels like an enormous risk. Yet, according to the Small Business Administration Office of Advocacy’s  2018 Frequently Asked Questions , about 80% of small businesses survive the first year. However, only about half of all companies survive after five years, and only 30% of businesses make it past ten years. So, you may be asking yourself, why do small businesses fail? Understanding the mistakes of overly eager entrepreneurs can help you avoid the common pitfalls in building a sustainable and successful small business.

For a more in-depth understanding of the ins and outs of starting a business, take a look at our fully online course, Entrepreneurialism .

Skimping on the Business Plan

“Failing to plan is planning to fail.” This sentiment is often credited to Winston Churchill but holds particularly true when launching a new business. As with any project, the time and thought a person puts into planning pays off down the road. A common reason why small businesses fail is they end up bankrupt or in court because they didn’t consider and document their plans carefully.

This is because sometimes entrepreneurs are in such a rush to get started that they neglect the business plan. Rather than planning for the long-term, they begin offering the goods or services as best they can and confront challenges only when they arise. This falls into the “planning to fail” trap mentioned above.

A good business plan will start with the big goals and work down to details. As made famous in his TED Talk on leadership, Simon Sinek advises against just answering the what and how of your business. It is essential to  start with why . Once you understand the people you want to reach and the impact you want to have, you can better target your business plan to include:

• Your business goals
• Outside forces that provide constraints or opportunities
• Descriptions of your products or services
• A financial analysis to determine the viability
• A marketing and sales plan
• An organizational chart showing necessary human resources
• Funding requirements
• Financial projections

These details in writing will guide your hiring, marketing, and operational decision-making so that you will be prepared to deal with storms when storms come.

Not Identifying Your Value Proposition

How does your product or service make life better for your customers? That is your value proposition – the unique way you can do a job or relieve pain in a way your competitors don’t. Unfortunately, many small businesses fail because they don’t distinguish themselves in a way that keeps customers returning and referring to others.

You may be familiar with the  Business Model Canvas . This planning tool asks you to identify customer segments, channels you reach them through, relationships you develop… in addition to key activities, partners, revenue streams, and cost structures. Identifying the customer is the key point in finding your value proposition. Think of your customers as real people, not just walking wallets. What jobs do they have to do that you can help with? How do your products or services create gains for them or reduce headaches?

To use a couple of real examples, some companies clearly define their value proposition and succeed, whereas other companies fail to do so and close. First, let us consider a cautionary tale. Borders bookstores were ubiquitous through the 90s but went bankrupt in 2011, largely because their competition offered the same products without the enormous overhead of large retail stores. The experience of being in a bookstore, browsing books, and exploring new displays, wasn’t enough to make customers lay down money to keep the business going. Borders succumbed because it could not offer a distinct value proposition.

On the other hand, some companies nailed the value proposition. Uber used technology to distinguish itself from taxi services – one tap on your phone, and a car with a rated driver comes directly to you, with a predetermined rate, using cashless transactions. They made getting a ride smart and easy. The customer’s “job” is getting from point A to point B. The pain reliever Uber offered saved time and effort by using their app to find nearby drivers and delivering riders to their destination with minimal communication.

Tools abound for mapping your  value proposition , and it is a worthwhile exercise to remember how you serve your customers so that you can keep your competitive edge.

Not Hiring the Right People

A great organization cannot be built without great people. Yet, how many organizations are as rigorous about hiring or as comfortable evaluating job candidates as they are deciding on an investment proposal? Unfortunately, the reality is that too many companies do not invest in ensuring a well-designed and executed hiring process. Therefore, failing to hire and retain the right people is another reason why small businesses fail.

Many entrepreneurs are hard workers but have little experience hiring and supervising others. Peregrine offers many resources to help you think through your recruiting, hiring, and retention plans and programs to help you manage others on your journey. Click here to discover a few of the online courses we provide to help you hire the right people and keep them.

Forgetting the Customer

Some businesses begin to devote themselves to their product or processes rather than remember why they are in business. Putting the customer first is about more than good customer service – designing your product or service, from conception to delivery, around your customers’ wants and needs.

This takes the value proposition a step further. For every business decision, you want to think of your best customers and ask how your decision benefits them. Companies obsessed with their customers create loyal fans who will return repeatedly and who also rave about the company in reviews and online forums. Zappos is an example of a customer-centric company that makes every transaction a memorable experience for the buyer. The online shoe store has built a culture of excellence in customer service, winning many awards over the years and making the company a  great workplace .  

Doing it all Yourself

Finally, a reason why small businesses fail is because it becomes too heavy for one set of shoulders. The good news is that you can build a team to help you achieve your vision! Communication and delegation are keys to long-term success.

Team building allows you to do more of what you love while letting others contribute. Entrepreneurs who are new to leadership can benefit from professional development in teamwork, including online modules on  Leading Teams , in-person workshops, or hybrid seminars. Investing in your leadership is one of the best things you can do for your business and your employees.

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9 Major Reasons Why Businesses Fail by Year 2 and How to Avoid Them

Posted january 28, 2021 by jake pool.

According to the Bureau of Labor Statistics, over thirty percent of private companies fail within two years.

Of course, there are external factors that businesses have no control over. Sadly, the COVID-19 Pandemic is a prime example of one. Since such events are unavoidable, let’s focus on internal factors that companies can act on.

9 common issues to avoid when running your business

As a new business owner, what are the traps to avoid from the start? And what can you do to stay in business? By understanding the following pitfalls you can hopefully avoid them and keep your business running smoothly for far longer than 5 years. Let’s dive in.

1. Insufficient funds due to weak forecasting

Without a doubt, poor financial forecasting is the main reason businesses fail.

It is relatively easy to plan fixed costs such as rent, payroll, utilities, hardware, etc. Entrepreneurs should vet this out extensively when writing their initial business plan.

However, it can be more challenging to forecast revenue generated from sales . Many new business owners are overoptimistic in their planning and vision. This results in an inability to amortize (pay off) an initial investment. Thus, the business fails.

Similarly, companies may be tempted to launch their product or services at a cheap price to be competitive. While it can work in the short-term, it’s not a sustainable business model. Once you start with a low price, it’s difficult to increase.

Goals should be ambitious, but attainable. And the budget should reflect accordingly.

2. The business lacks value

The success of any business hinges of its value. It might sound obvious, but it’s not that easy. As a business owner (or future), you probably think your product or service is great. But it’s not enough.

Before launching a business, always do extensive research (there is a lot of data available) on your target audience. Benchmarking and surveys are also a must.

Here are some generic survey questions to ask:

• Would you talk about this product or service with others?
• Have you ever heard of a similar product or service?
• How much would you pay for this product or service?

If your product is only valuable to you or a small group, or it doesn’t offer more value than your competition, it’s time to rethink things.

3. Inadequate business plan

As mentioned in the first point, budgeting is a key element of a business plan . But it’s not the only factor within the plan that will break a business.

A good business plan should include:

• A comprehensive description of the business
• Workforce needs and compliance (current and future)
• SWOT analysis
• Benchmarking Analysis
• Marketing Plan

But a solid initial business plan isn’t enough. Business owners should review and modify it regularly to keep with the pace of the industry and assess internal goals.

Many failed businesses in this scenario end up listed on business marketplaces like UpFlip because there are entrepreneurs out there equipped to change a poor business plan.

4. No connection with the target audience

The first questions any business owner should ask are — Do I know my target audience and do I understand what they need and want?

If you can’t answer those questions, it’s time to conduct more surveys and research. Otherwise, there is a disconnect, and the business will ultimately suffer and fail. It seems like a bold statement, but the biggest part of a purchasing decision is emotion.

Your product or service may have wonderful features and even value, but if it doesn’t connect with your target audience on an emotional level, it will fail.

For example:

If you run an office furniture business, obviously, the technical aspects of your premiere desk chair would be a sales point. But sturdy wheels and a comfortable backrest won’t differentiate you from the competition. 

Yes, you sell a chair. But also sell the idea of success, professionalism, or even luxury. The target audience must connect with your product on those levels. Otherwise, the business won’t stand out.

5. Competition is too stiff

Even with a comprehensive benchmarking analysis in the initial business plan, competition can evolve quickly. In many industries, there are new players every day in their respective markets.

To avoid failure, benchmarking must be a continuous effort. If your competitors are too big, it’s in the business’s interest to find a niche or some form of added value to your products or services.

Take TOMS Shoes , for instance. They broke into the highly competitive world of mid-level shoe sales by offering a socially conscious selling point to the value of their shoes. For every purchase, they give a pair of shoes to a child.

Note how their model also connects with their target audience at an emotional level.

6. Poor management

The success of a business comes from the top down.

Small business owners are often the only managers within a company. While it may work sometimes, it’s advisable to form a proper management team or at least hire a general manager.

Business owners don’t always have the necessary skills or time to be a good manager. Poorly managing or overlooking certain aspects of the business like human resources, marketing, or accounting can have a disastrous effect.

It’s important to learn to delegate to avoid wearing too many hats.

If you don’t have the money or infrastructure to hire full-time help (or in-house), think about outsourcing certain management tasks to a qualified freelancer via Upwork or a similar platform.

Otherwise, someone who can manage the company will soon take over.

7. Lack of a company culture

There is no happy company without happy employees. You may have a great business model and entrepreneurial skills, but the success of the company also depends on the staff.

It’s key to outline and implement a strong company culture from the beginning. And make sure that the people hired align with it.

Once in place, feed and maintain the culture mentality. Otherwise, you risk issues with high turnover. This has led to the internal collapse of many businesses in a shorter time span than two years.

8. Ineffective sales funnel

Getting leads is essential for any company, but your leads are worthless if they don’t convert. Many new companies focus on collecting data and leads and fail to nurture them properly.

To avoid bloating your sales pipeline , you need an effective sales funnel from beginning to end (and beyond!). It could vary depending on the industry, but be sure to nurture your leads as long as needed to complete the sale.

In the ideal sales funnel, leads convert when ready and become ambassadors of the brand. With a quality, automated system, you can sit back and watch it happen.

Here are a few ideas on nurturing leads:

• Send industry-related freebies (How-to Guides, Tools, White papers)
• Share relevant blog articles based on interest (personalization)
• Wish them a Happy Birthday! (Gift, Voucher)
• Set up a referral program with incentives
• Engage with leads on social media
• Use chatbot technology to answer FAQs when unavailable
• Newsletters (Old fashioned, but efficient!)

In other words, create and maintain a relationship even after the sale!

9. Bad marketing

In the early stages of a business, marketing is crucial. The key is to find the right balance between a reasonable budget and efficiency. Fortunately, this is possible thanks to digital marketing.

The two biggest advantages to investing in digital marketing campaigns are cost efficiency and measurable results (as opposed to traditional marketing methods such as print or tv advertising).

When setting up a marketing campaign, define the target audience, budget, and a realistic conversion rate. Again, if you need help, think about outsourcing for Google Ads or social media campaigns .

Many companies fail because of an inefficient marketing plan that allocates funds to ineffective channels or to ineffective content. And when it’s too late, it’s difficult to redirect funds to make up for the loss.

Awareness is key

As stated, some external factors that negatively affect a business are unavoidable, but there are many internal factors business owners can act upon to prevent failure. The first two years are critical to creating a perennial business.

Be aware of these reasons and don’t become a statistic!

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Reasons Why Small Businesses Fail : 11 Most Common Reasons

Free Guide on Starting a Business

• December 13, 2023

10 Min Read

According to the U.S. Bureau of Labor Statistics , approximately 20% of small businesses fail in their first year, and only 25% of new companies make it to 15 years or more.

Of the 100 businesses that set up shop today, only 25 would survive after 15 years. That’s a whopping 75% failure rate for small businesses in the United States.

As a small business owner, you should understand the reasons why small businesses fail. Learning from other business owners’ mistakes will help you save time, energy, and resources.

This guide will help you understand the reasons- why small businesses fail .

Sounds good?

Here’s a sneak peek into what you’ll learn:

Reasons Why Small Businesses Fail?

• Starting For The Wrong Reasons
• The Market Does Not Exist
• Inefficient Planning
• Capital Mismanagement
• Making Decisions Based On ‘gut’ feeling
• Inability To Market selves
• Failure To Know Your Customer’s Feedback:
• Unsustainable Expansion
• Fear Of Selling
• Failure To Pivot
• Lack Of Investment In Team-Building

1. Starting For The Wrong Reasons

The simplest definition of Business = Problem-Solving.

But unfortunately, social media has portrayed becoming an entrepreneur as fancy and astonishing. (Read: Elon Musk). Employees were working at 9-5 jobs; dreamed of quitting their jobs and starting their own businesses. Nothing wrong with it. But starting a business just because you are bored with your job is not advisable.

Running a business involves approaching prospects, marketing, product/service fulfillment, customer success, and customer service. One has also to ensure that your team is functioning effectively.

In a nutshell, every day is all about problem-solving and making sure that solutions are executed for maximum output. By ensuring this, earning money becomes a by-product. So, if you are not passionate about solving problems on a day-to-day basis, it is likely that your business will fail.

2. The Market Does Not Exist

Okay, so you are clear about what problem you are solving. Congratulations! You have cleared the first hurdle. Here comes the next part – ensuring that there exists an identifiable group of people facing that problem

For example – During the COVID-19 pandemic, people around the globe required face masks. So, mask manufacturers sprung up in quick numbers to fulfill that need. Similarly, your solution should solve a ‘real-life need.’

Also, your solution (product/service) should be easy to deliver to groups of people needing that solution.

Alex Hormozi , in his book – “$100M Offers” suggests finding a market to cater to while keeping the following factors in mind:

• Your customer should be easy to reach and target.
• Your customers are willing to spend money to solve their problems.
• The number of customers and problems they are facing are growing.
• Customers are experiencing problems with the current solution.

It, therefore, becomes essential that, ideally, you are a part of the group of people you are solving problems for. Since this helps you better understand their pain, problems, desire, and worries and build solutions for them.

3. Inefficient Planning

“If you fail to plan, you are planning to fail” – Benjamin Franklin

A successful business doesn’t happen by accident. It requires intricate planning and impeccable execution. It requires well-thought-out action steps that must be executed on a day-to-day basis – consistently. Yes, you may require to iterate occasionally, but you need to plan well to achieve your target.

Before you begin planning, a lot of variables need to be considered.

It includes:

• Your business vision and objectives
• Your revenue model
• Market analysis and competitor analysis
• Potential problems and solutions
• Financial – capital investment, balance sheet, financial forecast, and budgeting
• Marketing and advertising, etc

You could also refer to this comprehensive article by our team to learn how to write a business plan . Additionally, you could use the free business plan examples included in the article to get started with your plan.

4. Capital Mismanagement

It is vital since it helps your current expenditures and plans for the future.

A small business should, therefore, always be a positive cash flow.

It helps the business function smoothly since all expenditures are taken care of. Expenses include real estate rent, salaries, and production costs.

It should be understood that businesses with positive cash flow can spend more to improve their product and market themselves better. The business should price its product/service by keeping its expenses in mind. Pricing should be kept in mind expenses, time, and resources. Learn more about our guide on pricing strategies .

The best way forward for small businesses is to track their daily Profit and Loss . As a business owner, this will inform you about your daily cash flow.

5. Taking Decisions Based On ‘gut’ Feeling

Do you know what successful businesses like Amazon , Walmart , and Ikea have in common?

Think about it.

Okay, try one more time…

The answer is- objective, data-driven decision-making.

As entrepreneurs and business owners, our solution is the best. We live too much ‘in our head.’ But the reality is different from what we ‘perceive.’ According to some studies, more than half of Americans rely on their “gut” to decide.

The companies mentioned above focus on making objective decisions based on data. They study their analytics and collect data to make accurate decisions. It also helps them decide on a future course of action while keeping in mind past mistakes.

According to an article published in Harvard Business Review – collecting and analyzing data gives a competitive advantage to your business. It helps to offer better solutions that, in return, attract more customers and eventually marginalize your competitors.

6. Inability To Market selves

Imagine you researched your target customers, built a solution to solve your customer’s pain point, crafted a thorough business plan, learned how to manage business cash flow, and have been tracking your data to the T.

But, your business is not growing. There is revenue coming in, but not in the volumes you want.

If you can relate to this situation, it probably means your business needs Marketing.

Marketing means promoting and selling products or services to solve your customer’s problems. It is one of the most common reasons why businesses fail.

Companies like – Apple , Nike , Mcdonald’s , and Mercedes are legends in their market because of their marketing.

After the COVID-19 pandemic, small businesses have realized the importance of marketing, especially digital marketing. Small businesses had pivoted to a digital-first approach to keep themselves afloat during the pandemic.

This step-by-step guide written by the Upmetrics team can help you strategically plan your marketing efforts.

7. Failure To Know Your Customer’s Feedback:

Collecting and analyzing feedback helps small businesses understand if their product/service is helping solve their customer’s problems.

Collecting feedback and iterating on your business’s offer helps build competitive differentiation. It enables you to stand out easily in a saturated market and show that you genuinely care about your customers.

Some critical feedback sources are

• Your database. Call and talk to your customers. Get feedback and iterate. This is why it is essential to collect and analyze your data.
• Google reviews
• Social media reviews
• Online review communities like – Trustpilot
• Local business information aggregators like – Yelp and TripAdvisor .

8. Unsustainable Expansion

Small businesses often commit the blunder of rapid expansion once they show signs of growth. Instead of investing in improving their present offer, businesses often expand their product line or start developing their stores.

Theoretically, more stores and products/services should lead to more sales. But it is farther from the truth.

Not only does it lead to a drain of finances, but it also dilutes the customer’s experience. Small businesses should stick to their business plan and avoid unnecessary expenditures.

9. Fear Of Selling

“The lifeblood of any business is sales and cash flow” – Brain Tracy

Your business will not generate revenue if you cannot sell your products or services. You must learn how to persuade your customers about how your product/ service can help solve their problems.

One of the most common reasons businesses cannot sell their products/services is that they never really understand their customers. (Explained in detail in #2).

Your offering should match your customer’s requirements. If it does, it becomes easier to sell. It is, therefore, essential to collect and analyze customer feedback regularly. (Point #7)

10. Failure To Pivot

The COVID-19 pandemic forced small and medium business owners to adapt or close doors. According to a study by Yelp, approximately 70,000 mom-and-pop stores were shut down permanently in the United States between March 2020 and August 2020.

Many of these stores who took managed their finances wisely could switch their operations online.

Small business owners must manage their cash flow wisely and save for such difficult times. They should be ready to pivot to a sustainable business to manage their operations.

11. Lack Of Investment In Team-Building

Often, small owners hire the cheapest or most readily available talent to run their operations. But that is not the wisest decision. Mismatch in skills and experience can reduce your productivity and efficiency.

Choose employees based on the results and experience they can bring to your business, not because they are your friends or demand a cheaper salary.

How Can You, as a Small Business Owner, Ensure That Your Business Succeeds?

Mark Zuckerberg, founder of Meta (Facebook) once quoted – “In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”

While Mark highlighted the importance of taking risks and moving out of your comfort zone to take action, it is equally important that you pay attention to how meticulously and strategically you plan operations.

“If I had an hour to chop down a tree, I would spend the first 45 minutes sharpening my axe” – Abraham Lincoln

Tools like Upmetrics can help plan your business 2x faster. Not only does it help you build a plan and create strategies, view forecasts, and collaborate.

You can also start with a free demo to discover how Upemtrics can help you achieve this.

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About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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Why Do Small Businesses Fail? 5 Causes to Consider

There is no greater leap of faith than starting a small business. Even with proper planning, including a well-thought-out business plan and sufficient financing, it’s difficult to get a new business off the ground. It’s even more difficult to keep a small business going and growing, achieving goals and reaching new milestones.

Select Funding helps small business owners secure the financing they need at prices they can afford. We recognize how difficult it is to make a success of your small business. You may be wondering, how many small businesses fail? Here are five reasons that cause small businesses to fail and some ideas on how to overcome them.

What Percentage of Small Businesses Fail?

As a small business owner, you may have heard some alarming statistics about the number of small businesses that fail. It’s important to remember that when the Bureau of Labor gathers information about businesses, any closure is considered to be a failure for the purpose of publishing data. That includes businesses that close because the owner retires, so the numbers are likely to be somewhat inflated.

That said, small business failure rates are still high and illustrate the risk involved with starting a new business:

• 20% of businesses fail within the first year
• 30% fail within the first two years
• 50% fail within the first five years
• 70% fail within ten years

Each number is inclusive of the previous number, but there’s no denying that it’s difficult to start a new business and keep it going for the long haul. That said, small business owners shouldn’t be discouraged by the numbers because many of the things that lead small businesses to close their doors are remediable and avoidable.

5 Causes of Small Business Failure

Small businesses fail for a variety of reasons. Some reasons are a matter of luck or timing while others are foreseeable and preventable. Here are five of the most common reasons that small businesses fail.

#1: Lack of Working Capital

The most common cause of small business failure is a lack of working capital . Even when the business owner is in tune with what it costs to operate their business, they may not have the necessary financing to pay operating expenses. 

Of course, a lack of financing isn’t the only reason that small businesses may fall short financially. Another related reason is that small business owners sometimes don’t charge enough for their products or services and end up with a shortage of cash as a result.

When there isn’t enough cash available, businesses may be unable to pay suppliers and vendors and that can lead to production delays. Few suppliers will be willing to continue to fill orders without payment.

It can be difficult for small businesses to qualify for traditional bank loans or lines of credit. Small business owners may not be aware of alternative financing options . In some cases, the lack of financing can combine with other financial issues to make it impossible for a small business to stay open but in many cases, failure can be avoided by exploring alternative financing.

#2: Lack of a Business Plan

Even with proper financing in place and a stream of cash, businesses may still fail if there has been a lack of effective business planning. A business idea may be smart and timely but without a plan in place to ensure the company’s success, it could still become a small business failure.

Before a small business opens its doors, there should be a business plan in place that includes the following things:

• A description of the business
• Capital needs, including a budget and projected cash flow
• Employee and management needs, including projections of future needs
• A market analysis that includes both opportunities and threats
• Detailed competitor analysis
• A marketing strategy

If a business owner waits until after the business launches to address these items, it may be too late. For a company to be successful, there must be an understanding of both its industry and its competitors. There must also be details about estimated revenue streams and a plan for the company’s infrastructure and operations.

#3: Poor Management

When a business fails, it doesn’t necessarily mean that the idea behind the business was bad or that there wasn’t a need for the product or service it sold. It may indicate that poor management led to a collapse that could have been prevented with adequate planning and the right team.

An entrepreneur may have the ability to come up with a stellar business idea but lack the management skills to bring it to fruition. They may not have the skill set to create a workable business plan, hire the right team, manage employees, and make smart business decisions.

The reason that poor management is at the root of many small business failures is that often, the business owner is doing everything in an effort to get the business up and running. They may not recognize gaps in their abilities or they may assume they can learn as they go.

Even established businesses can suffer from poor management as business owners become complacent and lose their way. The best way to avoid management issues is to assemble an experienced team capable of doing the things that aren’t in the business owner’s skill set.

#4: Marketing Failure

We already told you that a marketing plan, including specific tactics and strategies, should be part of your business plan. It should come as no surprise, then, that marketing missteps can lead to small business failure.

Marketing involves more than posting on social media or writing an occasional blog post. In fact, marketing is as much a science as it is an art and a lack of knowledge and proper planning can leave any small business out in the cold when it comes to finding its audience and customers.

Proper marketing requires detailed market and competitor analysis, smart budgeting, and knowledge of conversion ratios and how to project market reach. It’s common for small businesses to trim money from their marketing budgets to make room for other expenditures. However, a lack of marketing can undermine everything else because it may mean there are no customers for the products or services being sold.

A lack of understanding of modern marketing, including consumer behavior as it relates to marketing strategies such as social media, SMS marketing, or email marketing can also contribute to marketing failure. The best way to avoid marketing failure is to partner with an experienced marketing agency that will do the work for you.

#5: Lack of Adaptability and Innovation

Even the best business ideas have a time and a season. A company may experience early success only to find that their idea or product isn’t sustainable in the long term. When that happens, a lack of flexibility can foreshadow the failure of the business.

Entrepreneurship is difficult at the best of times. When early success comes more easily than expected, it’s common for business owners to double down on what they did to attain that success, losing sight of the possibility that innovation is required.

The most successful business owners have the agility to adapt when the situation requires them to do so. For example, Michelin star restaurants that wouldn’t normally provide take-out to patrons pivoted to provide luxury dining experiences at home during the COVID-19 pandemic. Without adapting to the realities of the pandemic, it’s probable that those restaurants would have closed their doors for good.

When circumstances change, take a step back and consider your options. It may be that a little creativity and flexibility is all you need to avoid business failure.

How Can Small Businesses Overcome Failure?

The five common causes of small business failure we’ve listed here are all avoidable with the right team, planning, and financing . Here are some tips to help you avoid failure and achieve small business success:

• Don’t rush. A lack of proper planning can prevent many of the causes of business failure. With a well-thought-out business plan, you can obtain sufficient financing to keep your business afloat, hire the right team, and do the research necessary to match or outperform your competitors.
• Recognize your weaknesses. On paper, you might think you can save money by wearing every hat as you launch your business. In the long run, spending money to hire the right team – specifically people who have the knowledge and experience you lack – can save you money and increase your chances of success.
• Stay flexible. Regardless of your industry, flexibility is always necessary when starting a new business. Stay open to new ideas, read the market, and be prepared to change the way you’re doing things when necessary.
• Consider alternate financing options. Since a lack of capital is such a common cause of small business failure, it makes sense to keep an open mind about financing options. Even if you can’t qualify for a bank loan or line of credit, you can still get the money you need by working with a company that provides small business financing .

Some small businesses fail, but following the tips we’ve included here can help you minimize your chances of failure.

Prevent Small Business Failure with Flexible Financing

Small businesses fail all the time but yours doesn’t need to be one of them. Understanding the most common causes of failure and how to avoid them is more than half the battle.

Is your small business in need of working capital? Select Funding can help! Click here to learn about our small business financing options.

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Common Reasons Why Small Businesses May Fail

TriNet Team

Small businesses are invaluable to the U.S. economy. They create a substantial amount of jobs, foster economic diversity and drive innovation. Based on this statistic , 1 in 5 businesses do not succeed in the first year. While those odds may seem intimidating, business should keep in mind of these top 12 common reasons to be aware of that can be pitfalls to small businesses.

12 Common Reasons

Most business pitfalls come down to three core issues: money, planning and people. That covers a lot of ground, though. So let's break it down into more specific reasons, causes and solutions.

1. Lack of capital or funding

Startup and operational costs are going to be the first, most likely largest hurdle for most entrepreneurs. Without sufficient funding, a business might not be unable to maintain inventory, invest in marketing, or manage cash flow fluctuations. And all of that can lead to more operational challenges. And without adequate capital, the business won’t be able to deal with unexpected expenses (which always seem to happen, right?).

What to consider : Thorough financial planning, including realistic budgeting and cash flow projections can help an entrepreneur understand true funding requirements. Dogged research will help you get real numbers rather than hopeful guesses. A capital buffer helps, too. Think about exploring diverse sources such as loans, investors, grants, or crowdfunding for financial protection. Keep strict control of expenses, prioritize essential spending, and have a contingency plan for financial downturns.

Employee handbook? Get ‘er done.

2. cash flow problems.

Cash flow problems can directly affect the company’s ability to meet its immediate financial obligations. Without adequate cash on hand , a business may struggle to pay for essential expenses like inventory, rent, utilities, or employee salaries.

This can lead to a cascade of negative consequences, such as the inability to deliver products or services to customers . In turn, this can harm the business’s reputation and lead to a loss of sales. Persistent cash flow issues might also prevent the business from investing in growth opportunities, ultimately stifling its potential.

What to consider : a small business should:

• Diligently monitor its cash flow by using detailed budgets and financial forecasts to help anticipate and plan for periods of tight liquidity.
• Implement invoicing and collections processes to help ensure timely payments from customers.
• Maintain a reserve of cash to help cover unexpected expenses or emergencies .
• Consider other financing options.

3. Bad management team

Have you ever had a bad manager and noticed how it affected the business as a whole? Poor decision-making, inefficient processes and bad communication are some of the most common outcomes from poor management . This can result in a decline in product or service quality, a drop in customer satisfaction and low employee morale . That last item could result in poor performance and/or the loss of talented employees. Ultimately, it can sabotage a company from the inside out.

What to consider : Prioritize hiring skilled managers who align with the company's vision and core values. Think about hiring for " culture add " vs. "culture fit"—that is, hiring someone who would bring something new to your management team rather than someone who "matches the vibe" of your existing team. After hiring, continuous training and development programs can also enhance management skills. Implement a clear accountability structure with measurable goals to help gauge whether managers are aligned with the business's objectives.

4. Weak business plan

Successful business owners can tell you just how important it is to have a well-strategized, researched, dynamic plan. That's because a bad business plan can be a primary factor in the failure of a small business. Plans that were based on unrealistic assumptions, inadequate market research, or flawed financial projections have doomed many companies. Plans often lack clear objectives and strategies for growth, which can lead to haphazard decision-making and resource allocation.

Even the best planners can't account for every possibility, however. Startups may not succeed because they stick too closely to a plan when market conditions or consumer preferences change. An inability to adapt —whether it's to technological advancements, competitive pressures or economic fluctuations—can leave a business lagging behind more agile competitors.

What to consider: Every aspiring small business owner should consider conducting an extensive market research to inform a comprehensive and adaptable business strategy. If you're starting a business and need some tips on developing a business plan, the Small Business Administration is a great resource. Winging it is not a recipe for success. The detailed answers you find as you work on your plan can help you avoid many problems. Seek feedback from business advisors or mentors to ensure the plan is realistic and achievable—and positions the company for sustainable success.

On the other hand, the plan should be a living and breathing document. Regularly review and update your business plan as the market changes and your business evolves. Flexibility in operations and contingency planning can help the business pivot effectively.

5. Bad location or bad internet presence

The wrong location can render a small business invisible to potential customers , limit foot traffic and reduce the likelihood of spontaneous purchases. Similarly, a weak online presence in today’s digital age may cause a business to miss out on a vast customer base that shops and seeks services primarily online.

According to Forbes , nearly 1 out of 3 businesses still don’t have a website. This is an interesting statistic considering that over three-quarters of shoppers visit a business’s website before their physical location. The reality is that the web has become the consumer’s first stop.

What to consider: Before choosing a brick-and-mortar location, conduct thorough location analysis. Consider factors like foot traffic, target demographic, accessibility and proximity to competitors before setting up shop. For building a presence in the digital realm, invest in a user-friendly, search engine optimized website. It may also help to actively engage as a brand with customers online. Consider using online advertising targeted to your market to improve visibility and customer reach. Online engagement metrics and customer feedback can help guide adjustments to improve online strategies.

6. Misjudging the competition

Many businesses tend to misjudge their competition. This may lead a business to offer products or services that are not differentiated enough to attract customers. This oversight may result in a failure to capture a significant market share, especially if competitors have stronger value propositions or more aggressive marketing strategies.

What to consider: Continuous and thorough competitive analysis can help a business owner understand the strengths, weaknesses, strategies, and customer base of its competitors. Consider analyzing competitors' marketing efforts, product developments and pricing strategies. With this information, it can help you differentiate your company's product or services and adjust your own strategies proactively.

7. Misjudging the market

A product or service doesn't always resonate with its target audience . In addition, there just might not be enough demand for even a great product. As a result, the business may struggle to sustain operations if it cannot meet the needs or desires of the marketplace at the right price.

What to consider: A small business should consider validating its product ideas through customer interviews, surveys and market testing before and during the development process. Pair this alongside ongoing market research to stay attuned to shifting trends and preferences. Consider being flexible to pivot or make changes to products or services in response to customer feedback and market demands to make sure an offering meets a genuine and current market need.

8. Pricing issues

If the prices are set too high, potential customers may be lost and sales volume suffers. If prices are set too low, it can undermine profitability and the perceived value of the offering. Incorrect pricing can also signal a misalignment with the target market's expectations and spending capacity, making it difficult for the business to sustain itself long-term.

What to consider: What you need is a "goldilocks" standard when it comes to pricing. Conduct comprehensive market research to understand the pricing landscape, including the price points of direct competitors and the perceived value of their offerings to customers. Analyze your cost structure to help determine the lowest sustainable price while ensuring a reasonable margin.

If pricing issues persist, reverse engineer your prices . Determine your costs of goods sold (COGS), operating expenses and salary. Your product’s price should be at least high enough to break even, but you want to make a profit too.

To help balance profitability with market competitiveness, consider using dynamic pricing strategies, regular reviews of pricing models in response to market changes and clear communication of the value proposition.

9. Unsuccessful marketing initiatives

Unsuccessful marketing initiatives can be a pitfall for a small business by draining financial resources without generating the needed customer interest or sales. Poorly targeted or executed campaigns that fail to resonate with or reach the intended audience may lead to low brand awareness and a weak customer base. Ineffective promotion may prevent a business from establishing a strong market presence or achieving the necessary revenue to remain viable. Ill-conceived marketing can even do more harm than good—possibly driving customers away rather than pulling them in.

What to consider :

• Clearly define your target audience and tailor marketing strategies to help engage that specific demographic using data-driven insights.
• Set measurable goals for each campaign.
• Conduct A/B testing to help determine the most effective messages and channels.
• Use analytics to continuously assess and adjust campaigns for optimal performance.

10. Weak product or service

If a product or service doesn't meet customer needs or expectations it might get poor customer reviews, negative word-of-mouth and a tarnished brand reputation. It won't sell. And one bad product or service can drag down results across your entire business. In a competitive market, a product or service might be fine, but if it's inferior to the competition the company is in trouble.

What to consider: Start with a minimum viable product , and always look for ways to improve it. If you have the right product-market fit, consider focusing on creating a better product to help market to more customers. Consider investing in rigorous product development and testing, as well as quality control. Ensure that what you're offering not only meets but exceeds market standards and customer expectations. Maintain a commitment to quality, relevancy, innovation and competitiveness.

11. Bad timing

There are many ways that bad timing can be a pitfall for a business. You might launch a product or service before the market is ready for it. You could miss the optimal market entry point, after competitors have established dominance. You might invest heavily in expansion just before an economic downturn. One more example: launching too early, before your product or service is ready. These all can result in financial hardships that the business may not be able to overcome.

What to consider: Conduct thorough market research and trend analysis to help identify the most opportune moments for product launches, expansions, or other significant business moves. Keep up on economic cycles, industry trends and consumer behavior patterns to align business decisions with market readiness. Flexibility in timing and having contingency plans can also help a business adapt to unexpected market shifts or delays.

12. Burnout or lack of passion

It takes energy and creativity for any new business to thrive and innovate . Without it, business owners may neglect essential tasks, fall into poor leadership habits and fail to respond effectively to competitive challenges. Consequently, a business can suffer from decreased productivity and a dying company culture.

What to consider: A healthy work-life balance has become the gold-standard, especially when "work from home" settings can make those boundaries hard to maintain. Consider setting work schedules that aligns with your business, delegate tasks when possible and take regular breaks to recharge. Establishing a strong support network, including mentors, peers and a motivated team, can help business owners maintain enthusiasm and find new perspectives. It's also beneficial to periodically reassess personal and business goals to make sure they remain aligned with one’s passions and motivations.

Help for small businesses

Running a business is no picnic. Fortunately, TriNet can help simplify HR operations for small and medium-sized businesses, providing comprehensive HR solutions and expert advice in key HR areas such as employee relations and effective performance management strategies to help small businesses manage their workforce. With TriNet's support, small business owners can navigate the complexities of HR and gain expert advice which helps businesses better focus on growing their business.

This communication is for informational purposes only, is not legal, tax or accounting advice, and is not an offer to sell, buy or procure insurance.

This article may contain hyperlinks to websites operated by parties other than TriNet. Such hyperlinks are provided for reference only. TriNet does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks on TriNet.com does not necessarily imply any endorsement of the material on such websites or association with their operators.

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4 Common Reasons Strategies Fail

• Andrea Belk Olson

Stop blaming execution, and start identifying the underlying flaws.

Just because a strategy is formulated, doesn’t mean it’s ready for hand-off to the front-line for execution. Instead of reactively addressing failures during implementation, leaders need to examine whether the strategy was on solid footing in the first place. This requires stripping away assumptions to avoid four core errors, which often plague a strategy’s feasibility for being put in practice: 1) not understanding the problem; 2) not understanding the organization’s capabilities; 3) not understanding the immovable pressures; and 4) not understanding the cultural landscape. Examine whether the strategy considers the context in which it must be executed, as this is where uncertainty proliferates, and address potential pitfalls preemptively. This will ensure the team has the tools to deliver the hoped-for results. Successful strategy execution is a product of the fastidiousness of the plan itself.

Business strategies often fail. This is well-know by now: According to studies , some 60–90% of strategic plans never fully launch . The causes of derailment vary widely, but execution consistently bears the blame. While that can be — and perhaps often is — a fair diagnosis, it isn’t the whole story. The strategy design itself can be the real problem, however difficult that might be to admit.

• Andrea Belk Olson is a differentiation strategist , speaker, author, and customer-centricity expert. She is the CEO of Pragmadik, a behavioral science driven change agency, and has served as an outside consultant for EY and McKinsey. She is the author of 3 books, a 4-time ADDY® award winner, and contributing author for Entrepreneur Magazine , Rotman Management Magazine, Chief Executive Magazine , and Customer Experience Magazine .

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7 Reasons Why Strategic Plans Fail (and how you can avoid them)

Jessie Published on 28 August 2013

Back to blog

Agile Project Management

Resource Planning

This is part of a blog series with practical tips on how to be more productive, cultivate creativity and growth within your company, and nurture a vibrant culture among your teams.

There’s an old saying that if you fail to plan you plan to fail . This certainly holds true in the project management world, in our daily business endeavors, and in our personal lives.

Consider setting out on a weekend drive to the countryside without first planning your trip: deciding on your ultimate destination, finding a map, checking weather and road conditions, estimating the amount of time it’s going to take to get there and how many stops you’ll likely need or want to take along the way, for instance. Of course, unexpected events such as delays due to road work or other reasons can, and most likely will, require you to deviate from any anticipated plan.

To get to your destination, you’ll need to know what’s in and what’s out for your drive (scope), have some kind of idea of how you’re going to get there (a road map), who is joining you for the trip, who is driving, and most importantly, who’s bringing the snacks (resources), and you’ll need an estimation of time and cost prior to leaving the house. It usually helps if you have some ideas about what will happen if roadblocks or other delays impede your course (contingency plan). 

Why plans fail

The same analogy can be applied to strategic initiatives and project plans. With so many factors, it can certainly be difficult to estimate plans accurately. However, there are plans and there are plans . There are plenty of reasons why bona fide project plans can and do fail. The good news is that these can be addressed preemptively with project management tools that help you reduce the likelihood of a nuclear meltdown.

Here are some reasons why strategic initiatives and plans fail.

1. Unrealistic goals or lack of focus and resources

Strategic plans must be focused and include a manageable, clearly defined number of goals, objectives, and programs. Adequate resources to accomplish those goals and objectives outlined in the plan must be adequately allocated.

According to a study , effective communication methodologies enable project teams and organizations to increase quality, scope, and business benefits success. When planning a project, the scope must be comprehensive, detailed, and crystal clear to team members, stakeholders, and, preferably, to the entire organization to lay the foundation for its success. Implementing a holistic planning process, building a realistic business direction for the future, and employing effective communication channels among teams greatly improves the chances for successful implementation of your overall business strategy.

2. Plans are overly complex

We all know someone who is a plan over-engineering extraordinaire. They write pages and pages of text, mix in complex, overly detailed charts and diagrams, and create a schedule with so many contingencies and restrictions that it becomes virtually impossible to follow — let alone implement — by the project team.

If strategic initiatives aren’t capable of being effectively communicated because of their complexity, then team members cannot be expected to carry them out as intended. 

3. Financial estimates are significantly inaccurate

Cost estimating: art or science? All too often, projects proceed with little more than a general estimation of what sorts of resources are needed (this holds true for estimating required people-power, too). The further along a project is allowed to proceed without adequate financial controls and checks in place, the higher the overall costs involved. This can include more than just bottom line financial costs, but can also extend to customer satisfaction and your perceived reliability as a business and team.

4. Plans are based on insufficient data

Often — and particularly in the software development realm where Agile processes have been implemented — relevant project data is scarce at the initial planning stages. Without a proper tool in place to help teams flexibly modify plans as a project evolves and more information becomes available, this often encourages plans that are too high-level or overly broad (and vague).

If plans are based on wrong assumptions due to insufficient — or misunderstood — data, they drive the project towards disaster from the outset, particularly if there is no Plan B in place and no means with which to easily modify the plan before the project slides out of control.

5. Inflexible/undefined team roles and responsibilities

Often times, project managers and team members are considered primarily delivery (wo)men. They’re handed a project plan, and informed that their performance will be measured based on how well the project delivers against that designated plan. If they question the assumptions, estimates, or the general approach set forth in the plan, they’re instructed to “just get on with it,” as expectations have already been set. Guess who will likely be blamed if plans fails?

While it’s imperative that everyone involved in a project understands from the outset what their work is, how it fits into the project as a whole, and to whom they will be reporting, it’s also important that there be mechanisms by which their feedback is factored into the planning and project processes, particularly as changes in project circumstances require.

6. Staffing requirements are not fully understood

Resource planning is a crucial part of the project planning process, and, if not carefully implemented, incorrect assumptions and estimates made regarding human resource requirements, including the number, role, skill, and timing perspectives can impact project timeframe and overall bottom line costs. After all, plans depend on the resources who deliver them. Data and information is crucial both at the planning stages, and throughout the project process, to monitor availability and project status, and to make any necessary course corrections.

7. Project scope inflexible to changes

Experience tells us that simply because a plan has been implemented and everyone has agreed to it doesn’t mean that all will go as expected. It’s never a good thing when the scope of a project changes and it can usually be avoided through proper planning. But being adaptable and having a “Plan B” in case it does happen along the way is imperative to help attain the overall project goal.

How can you keep your plans from failing?

Considering there are so many reasons why plans can fail, one might wonder why ever plan at all. For one, mapping out a plan before embarking onto its implementation has plenty of benefits. It enables better organization . It allows for a better understanding of objectives and their alignment with broader organizational goals, but it also helps identify and take into account any impediments that exist in reaching those objectives.

Planning helps reduce, and even eliminate, uncertainty, improve efficiency of operations, and find smarter ways to complete project tasks and deliverables. Studies have shown that organizations that have adopted project portfolio management (PPM) solutions , including effective project management tools to help manage projects and the portfolio, and also conduct ongoing reviews of these projects see an increased likelihood of portfolios that meet schedules, scope, quality, budget, time, and business benefits.

Well-defined project planning also provides a basis for monitoring and controlling work on the project, which is crucial to staying on top of schedules, milestones, costs, risks, and issues.

Employing effective software measurement tools therefore becomes essential, not only for early forecasting and estimates, but for measuring compliance and identifying trends and deviations along the way.

• PwC Insights and Trends: Current Portfolio, Programme, and and Project Management Practices (2012)
• The Forrester Wave™: Project/Program Portfolio Management, Q4 2012
• Guerrilla Project Management: Do you make these 7 test planning mistakes?

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The Consequences of Not Having a Business Plan

• November 28, 2022
• Business plans

Failing to have a business plan could lead to huge consequences for your business. Read this blog to find out the disadvantages of not having a business plan.

What Is a Business Plan?

A business plan is the big-picture idea for your business. It’s usually recorded on an official document and covers your business goals and how you plan to reach them. There’s a wide range of types of business plans, some of which include:

• Opportunity
• Municipality or Non-Profit

While these business plans tackle different objectives, there are two elements that should exist in all of them: goals and strategy. Every business plan should have goals and overarching strategies that can help you reach them.

While business plans are most helpful for start-up businesses, they’re a valuable tool for every business owner interested in organizing their objectives.

There are some serious consequences to not having a business plan. Some of them include:

A Lack of Direction

A business plan ensures that everyone is on the same page and working towards a common, well-established goal. Without a detailed business plan, your business could become lacking in direction, wasting time and money on things that don’t matter as much to the success and longevity of your business. Goals can exist without a business plan, sure, but they’re probably not clearly quantified. A business plan helps you create specific, actionable goals that help you succeed.

A business plan will also encourage you to form a strategic plan for how to reach your goals. Strategy is as important as the goals themselves—and that’s why many businesses fail to execute. For example, you may have a goal to reach $5,000,000 in sales, but how exactly do you plan on reaching that? Many businesses set specific goals but never reach them due to poor planning. A business plan avoids this issue by establishing goals and a plan for implementing the strategies you need to reach them.

Missed Growth Opportunities

Another consequence of not having a business plan includes missed opportunities for growth. An effective business plan will identify the opportunities your business can use to succeed. This gives you an idea of what a successful trajectory looks like for your business and how you can get there. Failing to plan ahead means that every business process will have to be handled in the moment. This can lead to poor decision making (and an enormous amount of stress), and it also means that energy is focused on putting out fires instead of pursuing novel business ideas.

In today’s business environment, it can often feel like you need to innovate or fail. Businesses need to be constantly looking for new opportunities to survive. A business plan could give you the time to make sure that your business is conducting marketing analysis and identifying growth opportunities you can take advantage of.

• Wasted Resources

Business plans are designed to maximize your organizational efficiency. Not planning ahead of time will lead to your business making inefficient budgeting, inventory, and operational decisions. This leads to:

• Inaccurate Budgets and Financial Projections
• Disrupted Project Timelines
• Inventory Strain
• Operational Disruptions

The above failures could compromise your business’s overall financial security and turn away potential investors. Failing to secure investments could seriously compromise your business’s stability, especially if you’re dependent on maintaining consistent working capital.

Unclear Organizational Structure

A business plan also defines clear roles for staff. Organizational hierarchy is key to making sure that your business has an effective line of communication and a level of accountability that keeps everyone honest. Without a business plan in place, there can be confusion and important tasks that fall through the cracks.

Having clear structures in place also makes it easier for employees to get answers to critical questions. Have you ever worked in a business where you weren’t sure who to contact when you had work-stopping issues? If so, you know that these kinds of problems can lead to colossal wastes of time and efficiency. The average employee takes 23 minutes to recover from an interruption to their work . A business plan could keep these interruptions from happening.

Don’t Know Where To Start With a Business Plan?

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Failing to Prepare is Preparing to Fail: A Case Study

To illustrate the consequences of not having a business plan, let’s examine what happened when a real-world business failed to prepare.

Borders is a name you may remember. Established in 1971, it was a national bookstore chain that found high levels of success for decades. Borders got comfortable coasting on their tried-and-true business model and weren’t innovating when new technologies began to change the retail landscape in the 2000s. Borders was forced to make a fast decision—or shut down.

They thought the answer to their struggling business was more volume. They tried opening up more stores across the country, thinking that they weren’t targeting the right locations. Unfortunately, this ended up being the wrong decision. They declared bankruptcy in 2011, being forced to close 399 stores and lay off 10,700 employees. Borders could have avoided this by planning ahead. Instead of being prepared for changes to the business environment, they were addressing issues as they came, and they ended up paying the consequences.

Partner With GreenGate for the Plan Your Business Needs

Still not sure where to start with creating your next business plan? GreenGate can help! We’ve helped found over 400 businesses in the United States, and we want you to be our next success. Contact us today to take your business to the next level.

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