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Reasons for Business Failure

Reasons for Business Failure
14 December 2021 expositeadmin

Everyone knows that running a business is risky. To be successful, business owners need to be able to mitigate risks and meet the needs of customers at a price that enables a sufficient return on investment to enable the business to survive and thrive.

A key requisite for anyone in business is to understand what can lead to business failure and how overcome these risks. The most common reasons small businesses fail include a lack of capital or funding, having an ineffective management team, a weak business model, and having a poor marketing strategy.

Risk, Risk, Risk

Running out of money is a small business’s biggest risk. Inexperience in managing a business can negatively impact on a business, as can a poorly visualised business plan, or a poorly planned or executed marketing campaigns, or a lack of adequate marketing and publicity, are among the other issues that drag down small businesses. Here are Top 6 Reasons New Businesses Fail

Capital and Funding

Perhaps the main reason why small businesses fail is a lack of funding or working capital. If the business does not understand how much money is needed to keep operations running on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses, such as rent and utilities; and ensuring that suppliers are paid on time, cash flow problems can arise. Similarly, lower ha planned or required revenues can also lead to cash flow problems. Cutting prices to beat competitors is a common strategy that leads to ever decreasing revenues and profits but is a commonly used strategy. When the costs of production, marketing, and delivery outweigh the revenue generated from new sales, the eventual outcome is business failure.

Ineffective Management

Another common reason business failure is a lack of business acumen and leadership skill within the management team. The skills to set up a business are not the same as required for growing or sustaining a business.

Many small businesses simply lack the know-how and skills required to recruit, train, and manage people, or the financial skills to manage the cash needs of the enterprise or how to implement effective sales and marketing strategies. Having a strong management team that possess knowledge and skills in these areas is essential.

Weak Business Model

Possessing and implementing an effective business plan and having strong business planning processes is key to avoiding failure.  If a business overlooks the importance of effective business planning, it will not thrive and will probably fail. Creating and maintaining a business plan is key to running a successful company for the long term.

Marketing Strategy

Marketing is a crucial aspect of any business whether new or established. The effort to attract and retain sufficient customers to generate revenues is a major undertaking. Businesses often under-estimate the marketing and sales resources that are needed or do not deploy them effectively. Businesses that do not understand marketing are more likely to fail than companies that take the time to create and implement cost-effective, strategies and promotions campaigns.

At Exponential Training, we recognise the pandemic has and is causing a lot of personal hardship and damage to businesses and has impacted on the UK economy – if you would help to kick start your business, then check out the Erasmus+ business projects below or email John on john.moore@exponentialtraining.com.

  • Managers as Coaches is just one of a series of management and business training programmes that Exponential Training is rolling out in 2021 and 2022, others include:
  • Coaching MAPs which has been designed to help business owners and managers use a new coaching methodology focussed on performance improvement.
  • Sustainable Agriculture (SustainAgri) – The COVID-19 crisis has underlined the value of distance learning. In this project is a training programme supported by a serious game to develop entrepreneurship competences.
  • Go Zero-Zero Waste Management in Food Sector (GO ZERO) – GO ZERO is an innovative approach designed to help enterprises in the food sector to reduce waste.
  • Enterprises Growing Through Business Simulations (E-Growth) – this project is about developing the skills of managers and business owners to implement business growth plans.
  • Educational Package for SMEs To Increase Their Innovation Capabilities and Productivity (EPIC) is about developing the innovation abilities of managers working in smaller enterprises.
  • Projects On Time and On Budget (PRONTO) – this project is about implementing high impact business improvement projects to deliver increased profits and to reduce costs.
  • My Virtual Assistant (MYVA) – MYVA looks at a series of new digital businesses providing young people with opportunities to set up their own virtual enterprises as a MYVA.

If you are interested in finding out more about how you can learn to become a coach and to improve the performance of your organisation through digital innovation, then call John Moore on 01455 845071 or email John on john.moore@exponentialtraining.com.



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