Why New Businesses Close Down After a Few Years

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According to the U.S. Bureau of Labor Statistics, about 20% of newly opened businesses fail in the first two years, 45% of companies fail in the first five years, and an average of 65% in the first ten years. Only 25% of businesses succeed to reach the 15 years mark. And as years go by, these statistics remain the same.

In most cases, businesses fail because of a lack of knowledge. What most people don’t realize is that starting a business isn’t just about having investment money. It’s also about knowing how to manage it. Let’s tackle the common reasons new businesses fail so you can avoid them and have a better chance at success.

Not Studying the Market

Before starting a business, you’ll have to consider your market. If you’re planning to open a school supply shop in a location without school, chances are you’ll fail. It’s essential to think twice if the people in the area need the business you plan to open.

Poor Services or Low-Quality Products

The secret to business success is value. If you notice, most successful companies offer value. Make sure that you provide nothing but the best, never compromise, and never entrust the quality of your business to anyone else. Always be hands-on in checking if your products are of excellent quality.

Insufficient Advertising

Advertising is a marketing tool that helps in selling your products or services. Without it, your business will not be able to reach its target consumers. Most business owners think that consulting a reputable advertising agency is unnecessary, but it plays a vital role in securing that your business will get the attention it needs.

Lack of Transparency

Apart from selling your products, you also need to earn your customer’s trust. Generally, business is about generating income and earning from selling. But that is not always the case.

You have to make sure that you meet your customer’s needs. If they know that you have everything they need, they will stay loyal to your business. But if they usually get disappointed about not getting what they came for, they probably won’t return.

transaction between businessmen

Poor Cash Flow Management

Let’s say that everything goes well in the first few months, your business is booming, and you earn more than what you expected. As a result, you spend your earnings on unnecessary things. Poor handling of money is one of the leading reasons why new businesses fail.

Set your priorities straight and have control when it comes to managing your finances. If you keep spending on irrelevant things, you might lose total control of your finances and end up with bankruptcy. If possible, hire an external accountant to look after your cash flow.

No Leadership

Being a leader is an important trait all businessmen should have. Why? Because you will not only manage your business, you will also handle a crew that keeps everything in check. Even though they have their own tasks, at the end of the day, all major decisions are only made by you.

In handling a group of staff, you have to be considerate of their situations as well. In short, apart from being a businessman, you have to be a leader too. Here are the characteristics of a good leader:

  • Helpful
  • Understanding
  • Can communicate effectively
  • Ethical
  • Respectful
  • Responsible
  • Self-aware
  • Patient
  • Dependable

Avoiding Failure

Now that you know what causes business failures, it’s time to find out how to avoid them. You wouldn’t want to put your efforts, money, and time to waste, so keep these tips in mind:

  1. Manage cash flow properly. Money is what makes your business successful. So make sure to liquidate every centavo you earn and spend.
  2. Avoid loans. Sometimes, business owners get some loans for renovations or additional investment funds. While this might help, repaying debts and loans could take up years to finish.
  3. Maintain good customer service. Customers appreciate it when their concerns are heard. Remember that good customer service is the key to keep consumers loyal to your business.
  4. Practice good competition. Running a business is challenging. It’s an everyday competition in which business earns more and which is about to fall. Observe your competitors and learn how they maintain their businesses.
  5. Plan for the future. A smart businessman will always have different plans if things go south. Planning helps in making sure that even though your business failed, you won’t drown in debts.
  6. Know the latest trends. It’s easier to attract customers if you provide the latest trends. For example, if your business is a salon, study the latest hairstyles that people like.

Even though a considerable percentage of new businesses fail, that’s not a reason to give up. Instead, use that as a motivation to keep your business running. Maybe you need to make significant changes to reach your target market. Hopefully, this article helped you find ways to make your business a success.

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