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7 reasons why your business may fail in the ongoing economic downturn

3rd Jul '15 • By Ben Williams

We are all aware of the current economic problems that face businesses in today’s economy. With the difficulties facing Europe and America, Australia’s economy will deteriorate as China slows. Only the best will survive in this type of environment.

Here are our tips to help your business stay strong and survive any future economic downturn.


We are all aware of the current economic problems that face businesses in today’s economy. With the difficulties facing Europe and America, Australia’s economy will deteriorate as China slows. Only the best will survive in this type of environment.

Many businesses cut back on advertising and exposure in these conditions to minimise costs during these difficult times. However, those who realise the value in online advertising and step up their advertising, they find less competition and a greater return on investment.

A modest 4 per cent of businesses will survive 10 years or more, so small businesses will need to be tenacious and keep their skills up to date. Here are most common reasons why businesses fail;

1. Not Having Enough Money within the First 2 Years

A common and fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed in the first years of operation and they are forced to close early before they even have had a fair chance to succeed.

It is important to realise how much money your business will require; not only the costs of starting the business, but also the costs of staying in business. You need money for ongoing advertising and promotion, especially online as the majority of business searches are carried out online today. You might have the best service or product in the market place, but if you don’t set aside enough money to attract customers, your business won’t have the right tools to succeed.

All Companies now have the ability to take advantage of online advertising, even with small budgets. It is important to take into consideration that many businesses take a year or two to get going and return a profit. This means you will need enough funds to cover all costs until sales can eventually pay for these costs.

2. Lack of Determination and Passion

Business owners need to be tough and willing to work harder in this environment. You need mental stamina to withstand the potential challenges that lie ahead. While things are hard, most business owners seize up and stress out. 

If you can remain cool under pressure and keep an open mind you will fare greater than what you would have otherwise. Those willing to try something new and willing to learn have more chances to succeed. It is important that failures don't defeat you. You should learn from your mistakes rather than be defeated by them, and use these lessons to succeed the next time round. Head, SBA economist, noted that studies of successful business owners showed they attributed much of their success to "building on earlier failures" and using failures as a "learning process."


3. Poor Management

Another factor attributing to business failure is poor management. Studies agree that poor management is the number one reason that leads to business failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, advertising, hiring and managing employees. Business owners must be aware of what they aren’t doing well and seek help when needed.

Neglecting a business can also be its downfall. Care must be taken to regularly study, organize, plan and control all activities of its operations. This includes undertaking continuous market research, which is an area that may be more prone to disregard once a business has been established.

A successful manager is generally a good leader who creates a work climate that encourages productivity. He or she has competent skills in hiring capable employees, training them and is able to delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and able to confront change, make transitions, and envision new possibilities for the future.


4. Poor Internet exposure

Your business location is critical to the success of your business. Your physical address or your multiple locations on the Internet is fundamental. Roughly 79 per cent of Australians use the Internet and most individuals these days are searching for businesses on the Internet. 

In comparison to traditional advertising media such as newspaper and radio advertising, the internet is relatively cheap to advertise on. The internet is a great source to maintain a steady stream of business during this ongoing downturn. This is due to the amount of individuals using the internet today to search for businesses daily.  With so many websites today, individuals turn to rate and review sites in order to get the best service. Trip advisor, for example, is the most used source for travellers today as they have quality providers as rated by their customers.

5. Lack of Planning

Anyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning - and hard work - success would not have followed. The same could be said of most business successes. It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future.

Components may include:

  • Description of the business, vision, goals, and keys to success
  • Work force needs
  • Potential problems and solutions
  • Financial: capital equipment and supply list, balance sheet, income statement and cash flow analysis, sales and expense forecast
  • Analysis of competition
  • Marketing, advertising and promotional activities
  • Budgeting and managing company growth.

In addition, most bankers request a business plan if you are seeking to secure additional capital for your company.

6. Over Expansion

Overexpansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies. At the same time, you do not want to repress growth. Once you have an established solid customer base and a good cash flow, let your success help you set the right measured pace. Some indications that an expansion may be unwarranted include the inability to fill customer needs in a timely basis and employees having difficulty keeping up with production demands.

If expansion is warranted after careful review, research and analysis, identify what and who you need to add in order for your business to grow. With the right systems and people in place, you can focus on the growth of your business, and not doing everything in it yourself.

7. No Website or Internet Advertising

Simply put, if you have a business today, you need a website or internet exposure.

In Australia alone, the number of Internet users (approximately 79% of the population) and e-commerce sales ($16.5. billion in 2011) continue to rise and are expected to increase with each passing year. 

At the very least, every business should be found on a local directory or on a niche related website. Directories are normally the cheapest and most effective way of reaching the greatest number of people per dollar spent. It is preferable for a business to have a professional looking and well designed website that enables users to easily find out about their business and showcase its products and services. Remember, if you don't have a website or Internet exposure through directories, you'll most likely be losing business to those that do, remember to make sure that your website or internet marketing makes your business look good, not bad - you want to increase revenues, not decrease them.

When it comes to the success of any new business, you - the business owner is ultimately the "secret" to your success. For many successful business owners, failure was never an option. Armed with drive, determination, and a positive mindset, these individuals view any setback as only an opportunity to learn and grow. Most self-made millionaires possess average intelligence. What sets them apart is their openness to new knowledge and their willingness to learn and do whatever it takes to succeed. The Internet can be a daunting place, so seek advice from an expert if you want to succeed.

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