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Top 5 Reasons Businesses Fail in their Early Stages

Updated on November 27, 2016

Failing business

Failing business
Failing business

Reasons why some businesses fail

It is a common knowledge that most businesses don't live long enough to celebrate their third anniversary of operations. Well, the last thing on every start-up manager’s mind is to fail. So if every business aims to succeed and not fail, how come the numbers for failing businesses keep rising by the day? Well, the fact is that there are many reasons why some businesses don’t succeed. The reasons why businesses fail in their early stages and some solutions to this problem would be looked at in this article.

1. Poor Recruitment

Staff recruitment accounts for one of the major reasons businesses fail in their early stage. Hiring the right person or people to work for you can be a very difficult task. Making the wrong choice comes along with consequences that can be lethal to your business. You must take the process of recruitment and selection very seriously. As a young business you don't want to have employees who are not up to the task or are not committed to your business. For your business to survive its early stages, your employees play a golden part in ensuring that. Due to limited budget or probably due to the fact that it is a new business; businesses in their early stages find it difficult to attract experienced people to work with them. To overcome such a problem, new businesses need to ensure that they hire dedicated people to work with. They also need to invest in staff training as well.

2. Improper research into the business

Another reason businesses fail in their early stages include improper research on the business before starting it. Improper research before commencement means you started business on a wrong foot. The prior business research forms the foundation and basis on which you start a business. It is with this research you prepared that attractive business plan which looked profitable in the beginning. However, if the research is poor it will only mean that the survival of your business will be threatened because your business plan will not work.

Before you start a business, you should make sure you study your product or service properly and get to know how your chances will be as compared to your competitors in the industry. Do not take any aspect of your research for granted because the little things that you ignore before you start business might turn out to be the biggest reasons for your failure.

3. Inability to meet financial obligations

Missing your financial targets can be dangerous to your business. Businesses are run on financial basis. Therefore if for one reason or another you are not able to meet your financial targets within the first few years of operation, you will not have enough funds to continue operations.

Missing your financial targets could be as a result of overestimating your sales revenue before you started operations. You could also miss your financial targets if you adopt inefficient marketing strategies or if you provide low quality products or services. You must at all times make realistic projections by doing enough feasibility studies before you start any business.

4. Poor management style

Poor management can also be another major reason why businesses fail in their early stages. As a business owner you must have a considerable amount of managerial skills to manage your business. Knowledge and passion in your line of business alone will not be enough for you to succeed. You must have good interpersonal and managerial skills in order to manage your business and employees effectively.

Marketing, legal issues, finance and accounting are key areas of your business which need to be managed properly. If you fall short of the requisite managerial skills needed to run and manage a business, just take a course in business management or hire a competent manager to do the job.

5. Over-expansion

Every business aims to expand and grow bigger than its present state. However, not all expansion and growth signifies a successful business. Over-expansion or premature growth can be dangerous to the survival of a business. It is imperative that business owners know when it is right to expand. For instance the increase in demand of a company’s products can warrant expansion in the form of additional staff or the acquisition of a distribution van. On the other hand, it would not be prudent if a company secures an additional distribution van when there has not been any significant increase in sales; unless it is meant to replace an existing one.

Opt for success over failure

Opt for success over failure
Opt for success over failure

Summary

Successful entrepreneurs accept failure as a part of life and business. What they often do is to learn from their mistakes and try to turn them into successes. I hope you have picked up a lesson or two from this article as you take that bold step of starting a business.

Which of the above reasons of business failure do you think can be easily addressed

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