Chapter Seven

Chapter 7: Why Businesses Fail

Why Businesses Fail

A business fails because of many reasons. The main reason is there was a lack of proper planning and research. No road map was prepared to show where you wanted to be a certain times in your business. This is important as you can look at it regularly to see if you are heading in the direction of your objectives.

Failures also occur because of being overstretched; had insufficient money; poor marketing; produced a product or service that did not benefit customers; poor management; no financial control; false belief in the business; not recognizing the limitations of the business.

When to Expand or Diversify

Business expansion can be done two ways; one, by diversifying within your customer base, two, going into a completely new business. Both hold dangers and these are issues that you should be concerned with.

The safest way is expanding your current customer base as they are known to you and you know what products or services they use. If you know your customers well you can set out a well thought out plan to introduce new items to them. Doing it this way enables you to maximize on your customers and at the same keep existing overheads more or less the same especially if you can use the same office and admin staff. This will help make additional income more profitable as the overheads are contained in the main business. The danger is not to stretch yourself too much as this may affect the business you have now. Make sure that you maintain the standards you have and do not let the new part of the business affect this.

This danger also applies to a new business diversification. The above points are valid if you can use the same office and admin staff. The problem is will you employ all new staff and management or will you use existing people?

Using existing staff has the problem of losing valuable people who have made your business successful. If you move them to the new business can you successful replace them with others who have the same skills?

Every expansion has its dangers and you have to carefully to ensure that whatever you do, you do not weaken the main business that made a success to enable the expansion to take place. If you have groomed good management then the transition will be smooth and successful.

How Many Staff Do you Need?

In a new, or small business, staffing is very important as they are an expensive overhead that must pay for itself. My suggestion is to try and use as much part time staff as you can. Take note of the busy times of day for your business and the periods through the year when you have a greater demand on sales. This way you will use staff according to demand and their costs will be covered by the extra sales.

It is impossible to advise you on actual numbers because each business has a different requirement. Just try and keep as much part time as you can such as bookkeepers and other occasional staff.

Read selected chapters from the book on the links below: