Reasons Why Many Businesses Fail

Reasons Why Many Businesses Fail

The fact is, most businesses that start, fail. By some estimates over 95 percent of all new businesses fail, with over half failing in their first year. That’s a lot of failure. First, we really need a definition of failure. Some people mistake failure for not being profitable but that is not uncommon in a new business.

So what constitutes failure? Failure of a business is defined by the owner, who decides his or her business has failed to meet the goals set for it and closes the doors or otherwise dissolves the business.


There are many reasons why businesses fail, but the most common reasons for failure are:

Not keeping books – It might shock you to know that many people start a business without having a clue about how much money is coming in and going out. They just “wing it” and spend a little here and a little there with no idea of what the expectations are for each expenditure. What’s more, they could not tell you what their profit is today, yesterday or by the end of the year because they failed to keep track of anything. This makes it hard to know how you’re doing, much less how much to pay in taxes, or well, anything. You simply cannot function in business if you don’t keep books.

Not marketing – All businesses need marketing to be successful. Ask any small business owner what they wished they knew at startup and they’d tell you they wished they’d known how much they needed to spend on marketing efforts. Marketing will take up most of your time, and a big portion of your budget. But, without it, you’re dead in the water.

Not paying taxes – This is sort of like not keeping books and usually the result of not keeping books. The last thing you want is for the IRS to tell you how much you earned rather than you telling the IRS yourself. More than likely they’ll over estimate and leave out many benefits, write offs and credits you could have had with proper planning. Taxes are to be paid “as you go,” so keep track of your income and outflows – balancing each quarterly so you know how much you owe.

Not planning – Winston Churchill once said “He who fails to plan is planning to fail,” and he may have got it from Benjamin Franklin who was known to have said, “By failing to prepare, you are preparing to fail.” Regardless of who said it first, the point is that you must have a plan. Plans can change as time goes on and more information is revealed, but start with a plan.

Not researching – Don’t just start a business without researching whether it is a viable business opportunity or not. Just because someone else says it is, doesn’t mean it is. You’ll need to test market and research any new endeavor that you want to start, before you invest too much time and money in a plan that cannot ever succeed.

Not sticking it out – While you do need to know when to walk away, once you’ve researched and identified a good business to start, stick to your plan for a specified time limit to ensure that you’ve tested out all possibilities before giving up. Many people give up right before the tide turns.

Not understanding laws – No matter what your home business idea is, it’s imperative that you understand the laws in your state, city, county and country. You should discover most of this information during your research phase. But it would really be bad to have started a business without doing all the research only to find out after spending a lot of money and time that it’s illegal.

These are the reasons why most businesses fail, but you can eliminate most of these problems by not making these mistakes. These are all relatively easy mistakes to avoid in the first place. When you look at successful businesses they have in common a few things, and it’s not always that they were the “best” that made them successful. Sometimes it’s the person who has the most perseverance and has done the most research who succeeds – while the person who seemed to know it all, but made one of the mistakes above, failed.


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