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The Biggest Reasons Businesses Fail (and How You Can Avoid Them)

Many people work hard to start their own business and build it from the ground up. They put their life savings and all of their energy into building their dream. They spend hours using slogan generators to come up with the perfect motto; they spend time interviewing candidates for each position very carefully; they put their own time and money into putting together an office, and so much more. Unfortunately, not all businesses succeed, and some entrepreneurs watch their dreams turn into lessons learned.

There are a number of reasons that businesses fail. Sometimes it’s due to money, other times it’s due to poor management. Whatever the reason, though, a failed business can be frustrating, discouraging, and can cause personal financial trouble for owners. If you’re thinking about or working on starting a business, here are some of the biggest reasons that businesses fail and how you can avoid them:

Cash Flow Problems

Approximately 82 percent of businesses fail because of cash problems. Many businesses experience but make it through those cash flow problems; however, sometimes those problems can be a business’s downfall. Not having enough money coming in to cover the cost of employees, pay the bills, fulfill orders, etc. will quickly cause a business to go under. While some businesses can survive and scrape by until cash flow improves, other are unable to stay afloat.

Cash flow problems can be caused by anything from disorganized books to serious debt, and lack of profit to fast growth accompanied by overspending. Luckily, there are some things you can do to avoid cash flow problems.

How to Avoid Them

One of the best ways to stay on top of cash flow and avoid serious problems is to plan and stay ahead. Planning, budgeting, and forecasting aren’t things you can do once and call it good. They need to be done over and over again on a regular basis. While doing them every day may be unnecessary, conducting monthly budgeting, forecasting, and planning sessions can help you stay on top of your cash flow, so you know where you stand and what you need to do to stay in the black.

Timing is another important aspect of avoiding cash flow problems. When you know what you have and what needs to be paid out, you can stagger payments to keep them from piling up at once and depleting your funds completely.

No Need for the Products or Services

There seems to be a market for everything out there, and learning about some of the crazy things that entrepreneurs have made money from makes it seem like no product or service could fail. Unfortunately, though, that’s not the case. Many entrepreneurs have put in a lot of hard work to get their business going only to watch their products fail because there’s no market, (or the market is too small), for what they’re offering.

How to Avoid That

The best way to ensure that there’s a market for your product or service is to do extensive research before you even start your business. The research should include everything from what other similar products are out there and who the competition is to customer surveys to gauge how well your product would be received and at what price point people would purchase it.

It’s Being Run by the Wrong Team

Picking the right team takes a lot of work and can be difficult to do. Even if you’ve chosen key team members who you thought were the right fit, you may find out later that they are poor managers, don’t have the skills they claimed, or are toxic employees that affect the entire staff. As hard as it can be to admit, in some cases, you may find that although you had a great idea, you are the wrong person to run things in an active position.

How to Avoid That

It can sometimes be difficult to tell the difference between bad, mediocre, and good employees in a short interview, but there are some telltale signs that you can learn that will help you identify quality employees right away. A strong work ethic, positive attitude, and ambition are all signs of a good employee.

Final Thoughts

Starting up a business can be difficult, but the reward and satisfaction can be more than worth it. Unfortunately, though, despite the hard work, businesses can fail whether due to cash flow issues, poor products, or toxic team members. Luckily, those can all be avoided, and with the proper insurance, you can get your business thriving in no time.

What has been the biggest challenge you’ve encountered while starting your business?