3 Most Common Reasons Why Businesses Fail


A thriving business has a lot of benefits. There’s the appeal of financial freedom, the prestige that comes with running one’s company and calling the shots, the added benefit of employing other people and a host of other advantages. This explains why individuals get into business.

Success in business is more about how well you can create a product or service that satisfies the needs of customers and clients. The ability to do this grants your business credibility, popularity, and financial success.

However, there are occasions when doing good business becomes a challenge. If you’re just starting out or you’ve been in business for a while and are still experiencing setbacks in attaining the desired goal, you will want to consider understanding the underlying causes to avoid failing. There are many reasons why business fail, below are the most common few.

3 Most Common Reasons Why Businesses Fail

Inadequate Funding and Capital 

No business runs without money. Money begets money. It is a fundamental principle that drives business as a whole. Cash flow is a prerequisite in any profitable enterprise. Take a good look at thriving businesses, and you will find that a lot of money is spent on maintenance, supplies, salary payment, material purchase, investments and tools to ensure a consistent revenue stream.

In fact, many studies and research have shown that every year, a good number of small and medium enterprises (SMEs) with excellent potential, products and services often fold up for lack of financial strength and capacity. Many of these businesses offered quality products or services and might well have been groundbreaking organizations, but if there’s no cash or worse still, ineffective accountability, an otherwise legitimate business model can fail.

Poor Business Management

It is a known fact that all good business managers consistently weigh the cost of success and their options while running their companies, divisions or departments. This goes to show that business management is pivotal to the success of every business.

Successful managers often know how to delegate and assign tasks. In many instances, they even employ the use of tools like task management software to help them keep track of personnel and their projects. With these tools, they can often ensure that their subordinates are well managed and are able to meet all set targets.

Since all factors of business — manpower, capital, and resources — are strong determinants of high-level productivity and revolve around the process of management, it makes sense that companies that are better able to manage these elements will thrive and succeed.

Those who can’t will fail. In fact, according to a release by Florida State University dated January 2007 on business failure, more than 700 clients within different business companies and employment levels revealed that almost about 39 percent managers lacked the integrity and the most vital skills necessary to run their companies. New businesses tend to fail without effective oversight and coordination — these capacities are so paramount to success.

Poor Marketing Strategy

An organization’s strength to thrive in a competitive environment is also hinged on its ability to identify new markets, maintain productive relationships with prospective clients and companies as well as maintaining good customer relations.

When these requirements aren’t met, the business is doomed to fail. The truth is, the extent to which your business forges ahead, relies on an effective marketing strategy with a clear understanding of who the ideal customer is, where and how to reach them, and the most cost-effective means by which to do so. Without such an understanding, a startup can fail before it even has a chance to reach the marketplace.

Knowing some of the biggest pitfalls that challenge business owners, endeavour to cover your bases or restrategize by determining your marketing goals, mapping your potential customers’ needs, hiring the best talents and hands, and having adequate capital sources. Finally, make sure to build a good relationship with customers by placing their needs as a priority. These strategies will make your organisation thrive, and your business succeed.


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One Comment

  1. Creating a plan of action and developing an educated strategy gives a company a solid direction. Goals and to do lists for all levels of management can then be created based off of that plan which can allow for quick wins and easy monitoring. I can’t stress enough the importance of making that plan. Without it, its like setting sail in a boat with no one at the helm and the sails tied up. The only movement that will happen is aimless drifting.

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