Have you ever wondered why businesses fail when they look steady and healthy? Well, existing statistics show that 8 out of 10 businesses fail even before their second birthday. This is a whopping 80% of the businesses. The shocking statistics show that only 4 out of 10 businesses make it to a decade since their inception. What happens to the rest of the businesses?
- 8 out of 10 businesses fail before their second year of business.
- Only 4 out of 10 business make it to ten years of business.
- 50% of the start-up struggle during their 1st year of business.
Here are a few reasons that experts blame for premature business failure:
Lack of a plan
Typically, most entrepreneurs join the business wagon without a specific plan or strategy on what to expect in the future. Most people jump from the 8 am to 5 pm day job to the business world without having a plan. Although there is a lot of freedom associated with self-employment, sometimes it may fail at the unexpected hour.Before leaving the 8 am to 5 pm job, make sure you have a plan on where you expect your business to be in 3 years. For example, if you want to venture into the hotel industry, have an idea on equipment needed, operating expenses, legal costs, expected returns, etc.
Not differentiating personal and business income.
Most entrepreneurs fail to distinguish between personal income and business income. For a business to be successful, the business and the owners should be two different entities. Using business income for personal expenses results in failure even before you recoup your start-up capital.
Have a separate account for the business and owner. Expenditure incurred by the business should be entered in the business books of accounts while the proprietor’s costs should be accounted for in a separate book of accounts. In the case of any unaccounted for costs, the accountant should reconcile the bank and cash book to identify what went wrong.
Not being in touch with the customers
In business, the customer is the boss, not you, the owner. Most entrepreneurs fail to understand this and rush to venture in an individual business without knowing what the customer wants. The customer holds the key to your success, and not the other way round.
Before putting all your energy into a business, give yourself time to learn your customers. Who are they? What do they want? What are their tastes and preferences? Asking yourself these questions will give you an idea of what to expect. Also, even when you start that business, ask your customers what their experiences are with your product. Get to know their suggestions and criticism and use that when re-engineering your business.
As the business owner, you are a leader who should give direction to your juniors. Poor decision making and poor leadership are a known cause of business failure. Not once have we seen convincing entities come crashing due to a bad decision made by the boss. If you are a business owner, it does not cost much to register for a leadership course or other necessary courses that give you the needed management skills.
Research shows that the most successful entrepreneurs invest time and money in personal development. Also, train your staff to be responsible and have a hierarchy of decision making depending on a person’s skills and expertise. In your absence, someone else will make crucial decisions that affect the business. As the founder, don’t lose touch with your business or employees.