7 Reasons Why Most Businesses Fail Within One Year

Entrepreneurship is no walk in the park. As a new entrepreneur gearing up to start a business or a business owner who’s recently opened your doors, there’s a lot of uncertainty ahead of you. Business failure isn't something you want to think about when you start a business. But according to the SBA, about one-fifth of business startups fail within a year.

Here are the top seven reasons for business failure and what you can do to avoid them.

Lack of Planning

Businesses fail because of the lack of short-term and long-term planning. Your plan should include where your business will be in the next few months to the next few years. Include measurable goals and results. The right plan will include specific to-do lists with dates and deadlines.

Failing to plan can be a major business fail.


" If you don’t prepare a business plan, your initial enthusiasm will fade and most likely you will fail."

Starting a Business for the Wrong Reasons

There are many people that start their businesses because what they offer is something they are very passionate about, and then there are also many people that will start up any business that they think can make them a lot of money. If you plan on starting a business make sure you are starting something that you have a strong interest in because if you are not going into something you love your chances for success are very low.

If you are not passionate about what you do other people will see that and in many cases, customers will find another company that does the same thing but is run by someone who really cares and knows all about their products and services.

Photo by Shopcorporatemisfits.com 

Lack of Profit

Revenue is not the same as profit. As an entrepreneur, you must keep your eyes on profitability at all times. Profit allows for growth. According to Small Business Trends, only 40% of small businesses are profitable, 30% break even, and 30% are losing money.

Poor Financial Management

Use a professional accounting software like Freshbooks or Quickbooks. Keep records of all financial records and always make decisions based on the information you get from real data. Know where you stand all the time. If numbers are not your thing, hire a financial professional to explain and train you to understand, at least the basics.

Manage Cash

Entrepreneurs that fail often confuse cash flow with profit. The two are not synonymous. It is possible for you to go bankrupt with record cash flowing into your business. To succeed in business you don’t just need cash flow, you need positive cash flow. With positive cash flow happens when the cash funneling into your business is more than the amount of cash leaving your business. It is simple yet often ignored. The companies that ignore this end up with negative cash flow. This happens when the outflow of cash is more than your incoming cash. You should never allow negative cash flow.

Not Sure What Being an Entrepreneur Entails.

Many aspiring entrepreneurs have a fantasy-driven view of what it means to own a business. Social media has made entrepreneurship look glamorous and sexy. Thinking of an idea is fun! Writing a business plan and picking out your logo is fun! Executing that idea as a business day in and day out is not always fun. So the best preparation is getting real about what it means to own a business.

Before you start, get some experience so that you know if you even like that business, let alone want it to be your sole focus for years. Some ways to get experience include getting a job in that industry, mentorship, asking to follow someone who is already running a similar successful business, reading and researching to understand all aspects of running a business.

No Market for the Product or Service.

One of the most critical steps an aspiring entrepreneur can take before starting to help ensure some level of success is to make sure that there is a market for their product or service. As important, it also tests to see if the aspiring entrepreneur can reach the target market as well.

Try testing out your product or service on a small scale first. If you want to make cupcakes, for example, make sure that you not only can get some orders but that you get repeat, frequent orders from customers before investing in a storefront.

Also, make sure that the market wants the product or service at a price that makes you money. Testing assumptions, doing research and going small-scale allows you to pivot instead of falling flat on your face.

Yes, it is true that most businesses fail. It is also true that many of them succeed. Those that succeed are not the result of miracles. Entrepreneurs who lead businesses to success understand that it takes a carefully planned and executed strategy.

You have what it takes to succeed! Make sure you take time to understand all areas of your business and don't be afraid to ask for help.

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