Reasons why businesses fail

Launching a business is a challenging experience that ends in failure for far too many entrepreneurs in Texas. In fact, 30 percent of all new businesses around the country are unsuccessful and close within their initial two years. Half close within five years of starting, and nearly two-thirds fail sometime within their initial 10 years, according to a recent report by the Small Business Administration.

There are several factors why businesses fail. One factor is due to insufficient funds to keep the business going. Perhaps the business experienced a catastrophic disaster such as a fire, flood or tornado. In other instances, the business owner failed to sell a large amount of inventory. Under such circumstances, many business owners turn to borrowing money to keep the business going, but such actions often compound the company’s problems and eventually force the business to cease its operations.

Another reason many companies fail is that the products they produced did not bring in an adequate amount of profit. Either this was due to the lack of demand for the company’s particular product or the product’s market value was too low.

Additionally, many businesses fail because of an unsuccessful brand image or poor marketing. If the business failed to attract and keep customers, it may have been because it lacked a strong marketing strategy to draw customers to the company and its products. A lack of experienced leadership is a further factor leading to business failure. Inexperienced entrepreneurs launching a business may face troubles associated with human resources, investment, sales and planning.

To increase their chances for success, new business owners might consider seeking legal guidance at the outset. Legal counsel could explain the benefits and limitations of the various business entity forms and offer advice about the one that would be the most appropriate choice.

Source: Business 2 Community, “Why Failure Should Be Included In Your Business Plan”, Margarita Hakobyan, Jan. 3, 2016

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