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TOP REASONS WHY NEW BUSINESSES FAIL (1)

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Failing to prepare, you are preparing to fail – Benjamin Franklin

Over the past years, I’ve worked with various business start-ups and aspiring entrepreneurs, helping them turn their ideas into reality. Over this period, I have seen many people start off with great ideas and fall off along the way while others have gone on to create successful businesses.

Before diving into a new business, it is important to look at some of the reasons why a new business can fail.

Facts gathered over the years have shown that 50 percent of new businesses fail within the first year, while a further 90-95 percent fails within the first five years.

As a new business owner or a prospective start-up, it is important for you to be aware of the common mistakes made by these failed businesses as it can ensure that you do not fall into the same category. Starting a new business can be compared with driving a car.

It cannot be fully learnt and understood theoretically, it has to be practiced. You cannot avoid every mistake in business, but it is always good to learn from others in order to minimise the mistakes and ‘bumps’ you may experience along the way. You may have a few ‘scratches and dents’ while starting off, but you have to learn to enjoy the experience and learn from every mistake.

Back to the reasons why new businesses fail; after conducting a research and looking at some examples of businesses that have failed to take off, here are just five of the top reasons why new businesses fail:

1. Incompetent Owner:

It is said that businesses don’t fail, the owners do. The majority of businesses that fail might have succeeded if they were run by the right people. There are several examples of businesses that have nearly gone down the drain, and all it took was a change in the CEO or ownership for the company to revive.

As a business owner, it is important to develop the right mindset and ensure that you are leading the company in the right direction.  A business owner who is incompetent will only lead the company to ruin. It’s advisable to find a coach, mentor or business advisor who will ensure that you are running your business effectively.

2. Lack of Long-Term Vision:

One of the most common reasons for new business failure is that business owners do not have a long-term vision for the company. A vision is different from a plan. A plan allows you to achieve a goal or vision.

Plans will always change as you start running your business, but your goal or vision will always stay the same as it guides you to ensure that all the steps you are taking are in line with your business. Failing to establish a clear vision will only lead you in several directions.

When you understand where you are taking your company in 5-10 years, or even within the first year, this will enable you to persevere through difficult periods in the first year when many people tend to give up.

Having a long-term vision will also allow you to effectively integrate new staff members, partners and any other new members into the business, as you will be able to share the goal and vision of the company with them.

 3. Insufficient planning:

This is one of the areas where you are likely to get people with different point of views. There are some people that believe in meticulously planning before stepping out to run their own business, while there are others who believe in ‘just getting on with it’.

In my experience with start-ups, I have met people who have taken two years to write a business plan and keep it tucked away nicely on a shelf without actualising the plans. I believe that it is important to have a sufficient plan/strategy and take the first step. As I mentioned earlier, it is impossible to avoid every single mistake in running a business, but you can minimise the challenges you will face by taking time out to research your market and the product or service you will be delivering.

The key to success is not developing a great business plan, but having the ability to adapt to changes that might occur and can cause deviations from your business plan.

There are many examples of great business owners who started off their businesses without a formal business plan; but eventually as the company began to grow, they started developing a plan of action in order to have a smooth transition. Business plans are essential in certain situations, such as applying for bank loans or acquiring investments from private investors.

Sufficient planning will enable you to understand how to go from point A to point B. It will allow you to state your strategy for achieving your sales figures, as well as understanding the projected turnover for your company.

 4. Wrong Location:

Placing your Business in the wrong location can cause it to fail even from the beginning. It is important to know that your location is an important factor to consider, because you must ensure you are situated in an area where either your target market is located or which can be easily accessed by your customers, employees and suppliers. If you place your business premises in an area that is inaccessible, then it will be difficult to make any sales. The choice of your business location must be taken even more seriously if your business requires a lot of face-face interaction.

5. Lack of capital:

There is a simple saying that goes: “When there is no money, the dream dies”.

One of the most common mistakes aspiring entrepreneurs make is not ensuring they have the ability to find sufficient capital to fund their business start-up. It is true that you can start a business with little or no capital, but your business will need an injection of capital at a certain stage.

You must understand the amount of capital needed to start off your business. Lack of capital will certainly destroy a business, as it means that the business-owner is unable to acquire the required resources to operate in the company. Your first step is to define your start-up cost and start looking at your source of funding.

These are just the first five reasons I will be discussing over the two-part series. Do keep a look-out for the second part of this article.

This article was originally published on Business and Financial Times of Ghana

 

 

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