Why Traditional Businesses Fail – 5 Vital Reasons

Why Do Traditional Businesses Fail? Here are a few of the overlooked reasons businesses fail.

Wearing too many hats:
This is a huge overlooked problem in the world of traditional business and can single handedly destroy a business ove
ight. If you are the person handling 2-5 positions within the company, and the business could not operate one or two days without you on its own; it is a matter of time before you harm yourself and ultimately the business.

A. If you get hurt or sick, your business stops. This is when the business is completely reliant on you.

B. If you are not qualified to perform certain aspects of the company (business functions): you are damaging the business structure or outside client perception.

C. Too many hours of work: you will inevitably cause yourself physical exhaustion and have a burn out rate of just a few years.

D. You may think that you are saving yourself money by not hiring the needed amount of people to perform a proper business structure, but in the end you could be hurting your growth and even preventing a higher price on the sale of your business.

Wearing to many hats is a real burden and will cause more problems within a company than you can fathom. I would suggest that if you want to move forward and have a thriving company that you budget and prepare all job duties to be delegated to someone qualified when your cash flow will sustain the expense.

2. Lack of Working Capital: This is a vital necessity in a traditional business, working capital is a word to describe a large amount of on hand cash that is set aside to handle unexpected expenses and company growth. If you are not capable of having at least one or two full months of company expenses covered by your working capital, then you could be at risk of losing everything in a blink of an eye.

A. Many businesses work on a NET 30 (payment is due within 30 days of work), but do you really get paid on time? And what happens if you don’t get paid at all?

B. There are many fixed expenses on a day to day basis called fixed overhead. These expenses do not depend on the work that you do. Many people do not understand this concept until they have to pay bills and employees from a bank account that does not have enough money in it. This causes a cash crunch and is a real problem if you do not have extra money put aside to float your business along until you receive payment from your clients.

C. Extra unexpected costs may prevent you from performing your services until fixed or corrected, if you do not have enough on hand cash you may have to borrow or shut your doors.

Working capital is prudent to any successful business and will allow you to grow and be comfortable. If you have a large reserve of on hand cash, you will never have to pass up an opportunity to expand your business while preventing cash flow problems.

3. Cash Flow problems: This is when you are not able to pay for bills, taxes, and make payroll for your employees or yourself on time. Understanding the timing of when you receive cash in your business is critical. When cash flow problems occur it can be detrimental to your company and you may not be able to recover or collect funds fast enough to keep your business from closing.

A. When you are spending or withdrawing too much from the company prematurely before you have received the payments due to you. This is a problem especially when you do not have a secondary source of emergency funds.

B. Many times cash flow problems can stem from fast growth, theft, too much overhead, taxes, not properly job costing (more money going out to employees than the job takes in or charges), accounting errors, etc.

My advice is do not deplete your bank account with credit cards, get in a habit of only taking money out one time a month after all expenses or even six times per year. This habit will give you plenty of extra money in the account and acts as working capital until you have made sure that all of your bills have been paid.

4. Rapid Growth: Rapid growth is a silent and unexpected business failure waiting to happen if not done properly. Many people do not understand the proper way to grow a business that promotes a healthy and strong business structure while increasing the revenue. The common phrase used amongst other business owner to describe a Rapid Growth failure is “too big, too fast, too soon.”

A. Before you grow you must dive deep into research on how much it will cost you to expand the area or provide a service new to your company. This will ensure that you know your real cost behind the growth, putting you in a position to decide weather you can handle the cost associated with the new growth.

B. Determine how fast you can grow with your new perspective on cost of the new growth, then make a growth plan that will walk you through each step required to make the business ready for the new growth. This can include new employees, new job descriptions, new machinery or equipment, extra inventory, transportation, signs or logo, sales material or marketing strategy, time frames, extra cash on hand to cover upfront expenses and overhead, payroll increases and website updates.

C. When getting ready to sell a business many buyers will look at a fast growth as a possible source of structural problems and may shy away from buying that business without great research. Use the 15-20% rule of growth per year unless you have professional business growth help or bring in seasoned investors. This will ensure that there are no Cash flow problems or structural problems within the business.

When I grow I always research and document every step needed to make sure nothing goes wrong and I am fully aware of all extra cost associated with the growth.

5. Poor management: This problem is one of the most common amongst all businesses including those that have already failed. A business can still grow and not be forced to close the doors like the previous problems that I have explained even when the management is poor. A business is only as good as its management and poor management will stunt the businesses growth, structural stability, hire unqualified employees and waste your profits like its going out of style.

A. Poor management has no control over the business and makes you vulnerable to collapsing of the managerial system creating BIG issues for you to deal with.

B. Many people know that the manager that they have hired isn’t qualified to do the job, but if it means that they don’t have to be the manager than it is now plausible. This thinking will turn out to be a nightmare, when the management decides to harm the business through carless actions and possibly destroying your local reputation. Then they leave you hanging with a dysfunctional system, fewer employees and possibly many unknown thefts.

My advice to you is when you know they are not cutting the mustard it is easier work getting rid of them now before they damage anything too bad, but far harder to let them stay and to correct and repair all of their irreversible damages they may have cost you money and future clientele.

Summary:

Businesses fail for many reasons. Understanding the reasons why will help you prevent your business from failure thereby helping you succeed. It is better to learn from other peoples’ mistakes then to learn from your own mistakes.

By Jason Allen Mille
nhttp://www.jallenmiller.com/find

Keywords:nnhome based business, home business, business, work from home, entrepreneurship, entrepreneur, network marketing, mlm, multi level marketing, direct sales, self employed, selling, job, employer, internet business, web business, virtual business, internet marketing, web marketing, virtual marketing, drop ship, education, invention, secondary income, income, extra income, full time income, part time income, traditional businesses fail, why business fail, business fail nn