Top 5 Reasons Why Businesses Fail Financially

As an entrepreneur, our brains are constantly churning. Constantly coming up with ideas on how we can help EVERYONE. Now as great a thing as this may be, it is also a not so great thing. Because it is these ideas that leads us to make mistakes that cause our businesses to fail. Mistakes that we don’t think about until it’s too late. We get so caught up that our eyes and ears are not open to the obvious. We’re so caught up in making it happen that we miss all of the warning signs. And as a result our businesses suffer. They suffer financially and by design.

But it doesn’t have to be that way. You can stop going down this spirally road that only leads to financial disaster. In order to stop though, you have to become aware of the reasons why you’re going through financial turmoil. And I think there are five key reasons that rank in the majority. The five reasons are often overlooked due to the sheer excitement of wanting to start your own business. What you have to remember is that excitement alone is not going to make you successful. It takes lots of planning and preparation along with blood, sweat and tears. No one wakes up a success. They planned it and worked hard at it.

I’m going to share these five reasons that I think are the most critical and I challenge you to take time and sit down and see which ones apply to you. Then take the corrective action and change things before it’s too late.

Here are the 5 key reasons why businesses fail financially.

1. No savings / funds. This is probably the number one reason why businesses fail financially. And it’s because, like I said already, of sheer excitement. You MUST have funds to start a business. A savings that you began many years ago; a retirement account or life policy you can draw a loan on; a home equity line; a rich relative. It doesn’t matter the source, just as long as you have a source. These funds need to be enough to carry you for 12-24 months at a minimum. The longer the better. Keep in mind that it takes time to build a business. It doesn’t happen overnight. So make sure you can provide a lifestyle while you building this business. It doesn’t have to be the “lavish lifestyle” you currently live and more than likely it won’t be. Just be sure you can pay your household bills and put food on the table.

2. No business plan. This is the one element of a business that no one wants to do. Yet it is the most needed. You need a business plan to be able to help you have a clear understanding as to what you want your business to be, how you want it to grow and who you’re going to serve. And this is only the beginning. It will no doubt tell you and any potential investor a whole lot more. This business plan will serve as the roadmap and guide for how to take you business from a caterpillar to a butterfly.

3. No clients. Now this one was a no brainer. But I want to touch on because I want to point out that, yes it’s important to get new clients when you are starting you business but it’s even more important to keep those clients. Your daily goal should be not only how to get new clients but also how to keep your current clients. There is nothing more rewarding than knowing that you have a base of clients who not only continue to use your services and products but who are also raving fans and will refer you to the world.

4. No systems / structure in place. Every successful business has a system in place. A system that everyone in the business from the owner to the lowest man on the totem pole follows. This system creates synergy within the business that leads to nothing but pure abundance. Having a tried and true system to follow allows you to operate your business more efficiently and effectively. Think about McDonalds and Starbucks. No matter which one in the world you visit, the system remains the same.

5. Not understanding the numbers. This reason why businesses fail financially is probably the least recognized. Many business owners and entrepreneurs start a business and never take the time to learn how to understand it and manage it on paper. The can manage the daily operations of their business beyond measure. But when asked what their profit margin is they respond with a “huh?” When asked how their business is trending compared to prior years they ask “what’s trending?” Understanding the numbers of your business tells you more than how much cash is in the bank. It tells you where you money is being spent and how your business is truly being financed. It helps you strategize on where and how to make improvements.