Why Businesses Fail

Five Top Reasons Businesses Fail and How to Make Sure Yours Isn’t Next

Around 7 out of 10 businesses fail. These rates make for some worrying reading, especially if this is your first venture. What if you’re next?

If you’re worried about the future of your business we’ve put together a list of top reasons why business go under, and how to avoid becoming the next one.

Overestimating market

Unfortunately, the market is sometimes the last consideration for some entrepreneurs. They consider their desire to own a business and their own opinion of the product or service before questioning whether anyone needs or wants it.

Not thinking of your potential market first and foremost is a huge mistake because after all, the market determines your success or failure. It’s best to always analyse whether there is a current need for your business first before you get up and running.

Losing sight of customer needs

Following on from the previous point, even if you do have a market for your business, the work doesn’t stop there. Customer needs change and develop and to continue delivering what they need you need to keep up to date with them.

Market research isn’t just something you do in the beginning and forget about. Even if you do nail it at first, it’s easy to lose sight of customer needs when you get busier and the company grows.

Regular meetings with customer focused aims will help to keep everyone on track. With every new development you make in the business, the impact on the customer must be top priority.

Make sure market research is an ongoing task so you’re aware of any improvements you need to make to keep customers happy.

Poor financial management

If managing accounts isn’t your area it can quickly become overwhelming and damaging to your progress if you get it wrong. Many people overestimate the profits they’ll make or when they’ll turn a profit. Others underestimate their tax responsibilities or the importance of emergency funds when it comes to cash flow problems.

Always be realistic about what you can afford and have an emergency fund to help soothe cash flow problems when they arise. For financial management, hire an accountant to take some of the strain off you.

Scaling up too quickly

A lot of businesses will have a good few months followed by a naturally quiet period. Those who are unaware that businesses have highs and lows, may focus only on the highs and expect nothing else in the future.

They splash the cash either on themselves or on the business, investing in shiny new equipment, new staff, new offices and so on. When reality hits and the busy period quietens down, they’re left with hollow investments that don’t really add anything except bills and upkeep. This is a slippery slope towards major cash flow problems.

All new investments should be thought out carefully and not just based on last months revenue figures. Always assume revenue will fluctuate and try to get a second opinion on all major changes.

Management skills

Not everyone is manager material. It’s more complicated than simply telling people what to do. Managing people require excellent communication and diplomacy skills as well as the willingness to take responsibility at all levels.

Many people struggle to show strong leadership which can lead to an unfocused workforce. Others are more overbearing, leading to stifled micromanaged staff. Either way, poor leadership can cause poor morale and low productivity which can snowball and damage the business.

Learn to delegate and trust your workforce so they don’t feel micromanaged. If you struggle with giving instructions, consider leadership courses instead to help you build confidence and authority.


What are some reasons you’ve seen businesses fail? How would you ensure success long-term? Please share any thoughts below.

Stephanie Whalley
Serial snacker, compulsive cocktail sipper and full time wordsmith with a penchant for alliteration, all things marketing and pineapple on pizza.