This is the title of chapter six in my book, Business Fits. Here are some of the highlights from that chapter.
“In my opinion, the number one reason businesses, and especially new businesses fail is under-capitalization. If you’re starting a business from scratch everything takes longer and costs more than you expect.”
I give an example in the book of how increasing sales too fast in my Ford-Mercury dealership almost broke us. Growth is not always good.
“The second leading cause of business failure, in my opinion, is the lack of a successful proven business system. People start or buy a business with no plan. They often think they are going to learn as they go. Think again. It doesn’t work that way.”
The new entrepreneur often makes the mistake of getting so excited about their emotional perception of the demand for a product or service that they ignore the business system. The new entrepreneur may also ignore what role they must play in the business to be successful.
“Poor management is the third leading cause of failure, in my opinion. Every business must have marketing and management. A business can have the best business system in the industry, but if management doesn’t implement the system, it does no good.”
“There are a lot of other factors that contribute to a business failure. One of the major reasons is divorce. A divorce can mean dividing assets, which may mean putting the business in a position of under-capitalization. The business may have to be liquidated.”
There are many other factors including changes in the market, changes in the competition, a bad location, changes in traffic patterns, economic changes, changes in government regulations and more. Proper planning can prepare for these changes.
Franchise operations fail for different reasons. A good franchisor will not award a franchise to someone that is under-capitalized. A good franchise will have a proven business system, but a franchisee can still fail if they don’t follow the system. Not following the system is probably the second most frequent reason for a franchise failing. I find the number one reason for a franchise failing is divorce.
All of these issues and many more are covered in my book, Business Fits. http://BusinessFits.com
Please note I have only addressed private sector businesses. Government and especially our federal government don’t have to operate at a profit. Federal agencies are seldom as efficient or productive as the private sector. They have unlimited resources. They just increase the debt and tax the working middle class to stay solvent. It is time to change that philosophy.