May 22, 2019 | By Peyton Sawyer
Being an entrepreneur is not always the easiest path. Without a strong business plan set into place, accompanied with the marketing research necessary for success, and even an exit plan that does leave you in a bad way financially, you run the risk of failure. Some statistics say that no more than 10% of new businesses make it past the first year. If those stats prove to be true than 90% of businesses are set to fail, which makes it hard to get excited about venturing out on your own.
To prevent failure, you may want to find out the reasons why most entrepreneurs fail. That seems to be just as important as the research required to promote the success of your new business venture. To help balance out the ratio of success and failure, gain all the knowledge you can on how to succeed, and also how to prevent the inevitable failure your business may likely face.
The top reasons that one entrepreneur to the next may experience failure include; funding problems, staffing issues, operational difficulties, financial burdens, and even the rise of your business reaching its peak too early or too late. The reasons mentioned may appear to be quite different when considered on their own, but each actually shares a common theme. Take a look below to find out their similarity.
Starting a new business venture, as we all know will cost money. The journey through start-up and growth will require a certain amount of business fundingto get going. Ensuring that funding venture capitalists and financial institutions, whether they consist of traditional funding or non-traditional funding, will need to see an entrepreneur through from the beginning of the operation and on. Continuing to provide funding throughout the entire process is what all businesses need to be able to rely on.
Lack of Initial Funding
Failing to initiate a business plan with an idea that proves to be a good idea from the get-go, can seriously limit the initial funding an entrepreneur is approved to receive. The lack of funding in the start-up phase or even the initial revenue the business model fails to generate can be cause for venture capitalists to back out of the venture. Losing faith or patience in the entrepreneur is never a good thing. The financial institution providing funding will always be more concerned about the bottom line then holding an emotional attachment to the business idea like the business owner will have.
Anticipating Continuous Cash Flow
You may even find that some entrepreneurs experience problems with founders who do not anticipate the continuous cash flow that is needed to keep the business venture afloat, but that may be considered a separate issue.
Another reason why entrepreneurs fail within the first year is often related to staffing issues. Entrepreneurs new to the world of business often do not staff their ventures with the right resources. Without the required resources a business venture requires during take-off can result in failure. It is important to have the right amount of resources, when a business gets started or when a business begins to grow. But know that, it is also equally important to not have too many resources causing a drain on your business. Remember it is all about the right balance. Too many resources in operation can cost money and time to maintain.
Failed business ventures are also related to the financial burdens that an entrepreneur may place on the business. Managing the cash flow of a business can make or break it. If the entrepreneur does not have a mind for money than it is essential for them to learn really quick or hire someone with experience to oversee all financial matters in the venture. This aspect relates to the fact that most entrepreneurs fail to anticipate the cash flow issue that can occur when an imbalance between accounts payable and accounts receivables arises.
Budgeting Future Revenues
New ventures budget for revenues in the future. This means that unless the revenues expected in the budget materialize, the venture would run out of cash to continue operation. Also, the business funding received from the venture capitalists has the possibility of drying up leading to liquidity problems. While putting a hold off on receivables is an option, having the same option with payables may be a more difficult task. As a new start-up business, the entrepreneur may not have had time to establish relationships with vendors or the suppliers needed to continue operation, which means they will want payment for products and services upfront. Without the capital to do so, the venture is pretty much dead in the water.
If a new entrepreneur has operation difficulties on their new ventures, where maybe they fail to manage the ins and outs of running the business in an effective, efficient, and productive manner then that can certainly cause an issue for the sustainability of the business. This can happen when another is put in charge of running an area of operation that is not qualified to oversee or just not vested in the outcome of the business. While entrepreneurs should not micromanage their businesses, or overextend themselves, it is important to keep track of your investment. Some involvement of the day to day operation is essential, especially in the formative years, for all entrepreneurs on any business venture.
Peaking too Early or Too Late
The last reason listed, but most likely not the only other one for failure, is when an entrepreneur's business peaks too early or too late. This can lead to missing the boat when the right combination of opportunity and growth for success arises. Peaking prematurely can cause a substantial loss, just like peaking too late can. Either way, it is imperative to ensure that the time from ideation to bringing to the market is right.
Before starting any business venture, make sure to have the knowledge needed to succeed.