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Why does a business fail? There are literally hundreds of mistakes a company could make that may send them into possible failure, but for sake of simplicity (and time), lets focus on 4.
Lack of Capital and Financial Planning
According to an article from Investopedia, nearly half of all businesses that fail cite their lack of funding or working capital as the main reason for failure. As a business owner, it is your duty to have a depth of knowledge on what revenues your company is making, versus where your money is being spent and how much is being spent. Businesses that fail due to lack of capital or financial planning will usually be disconnected from these numbers or not manage them as often as they should.
Another glaring issue, especially early on, is that pricing strategies can miss their mark if not researched and implemented properly. Companies need to find that balance of keeping their bottom line down, but still attracting consumers to their product/service. If your product/service is unique, you can charge a premium. If it is not, you may need to use market penetrating pricing to compete and generate cash flows. It all depends on how established the market is, and how many competitors you have.
There are many options in terms of financial support for businesses in B.C. including:
If a company is starting up, expanding, introducing new products, trying new marketing techniques or any other type of investment, it is hard to achieve success without sufficient capital. Without high revenues or a steep growth trajectory, it can be difficult to find funding from investors, venture capitalists or traditional banks. Be sure to plan for lean periods by having contingency plans, or even opening up a line of credit to help with cash flow issues.
Business Planning Problems
Prior to opening the doors of your business, a plan will be needed. Owners who do not address the needs of their business and don’t use a well thought out plan are in for some serious challenges. Not only do you need a solid plan to begin with, the entrepreneur should regularly review the plan, and make changes as needed. A business that does not regularly review their plan will not be prepared to adapt to changes in their market, and could meet potentially insurmountable obstacles because of it.
There is a trend of businesses bootstrapping the funding for their company, and going without a formal plan. This is fine, but your business journey will likely reach an abrupt end if you have no plan in place. On the most fundamental level, you will need have:
- A clear description of the business and operations.
- A Strengths, weaknesses, opportunities and threats analysis.
- Projected cash flows and budgets.
- A marketing plan.
- A competitor analysis.
If you need funding, there is no way around it: you will need a formalized business plan. To access a business plan template that guides you through all aspects of a business plan, click HERE.
Market Research and Execution
Market research and general marketing practices are crucial in the early stages of any new venture business, as well as throughout the business’ life cycle. Entrepreneurs tend to underestimate how much money they will need to invest in marketing, especially in the early stages of their business. Often, entrepreneurs will make this realization after operations have begun, and by that point it is hard to re-allocate money that has already been invested in other areas. Be sure to budget enough money to marketing efforts early on, and if you have a surplus, you can then re-allocate it much easier!
Similar to being realistic with your marketing budget, be realistic on who your target markets are, and how large that market is. No, not everyone is your target market (no matter how awesome your product/service is). Unless you hone in on your specific target market, your product/service is destined to under perform, or fail. Be sure to focus on:
- What problem your product solves.
- Your target’s psychographic information (what they think).
- Your target’s demographic information (age, gender, income level, education etc.).
- Your target’s geographic information (where they are).
- Your competition, and how you are going to be different or better.
- Your value proposition to consumers (why should they buy from you?).
Once you have a firm grasp on who your target markets are, you can have a realistic view on how much of a market you can access. If your city has 95,000 people, it is impossible to serve all 95,000 people. Run surveys, find case studies, study competitors and access as much information as possible to determine a realistic number of people you can access (this is also very important for financial forecasting).
This one is quite straight forward: if you your business is mismanaged, it will fail. In the first few years of a business, the owner may be the only senior level person with a wide range of business knowledge. Just because an individual may have the necessary skills to create a viable business, does not mean they have the attributes of a strong manager. If they do, it may be the case that they do not have the time to manage their employees properly, and haven’t employed someone to take care of that aspect.
A great manager knows the skills they possess, and are mature enough to admit to areas they may fall short. A strong management team of individuals who have complimentary skills is key to a successful business venture. If there are certain activities that no-one performs well, outsource them. Be sure to hold team meetings on a consistent basis and be sure everyone in leadership is on the same page, because any dysfunctionality within leadership will more than likely trickle down and affect all aspects of operations.
Whether you are a start-up, or an existing business, being your own boss is rewarding and has the potential to be very lucrative. However, there are also many obstacles, threats and common mistakes that lie between you and the goals you wish to achieve. Use the information you’ve just learned to avoid these common mistakes, and make your business venture a success.
For any start-up or existing business that is struggling, looking to expand, needs to be connected to resources or funding, or has any other business-related inquiry, Venture Kamloops is here to help. Feel free to connect with us for a FREE one-on-one consultation by following the link, HERE.EntrepreneursGeneral Business
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