Finance Advice Blog

Register and get a company is not an easy task. It is alleged that, on average, 70% of them fail before they reach 3 years and only 10% are over 5 years successfully.

Here we present the 5 main reasons why companies often fail, and some tips on how we can meet each of these reasons:

1. Lack of experience

Creating and managing a business is not easy, is not something you learn from the overnight, but it is something you learn over time. Learn how to create and manage a business requires theory, but above all, a lot of practice.

The lack of experience often results in overly optimistic, unrealistic projections in hasty decisions in inefficient management, etc.

The experience acquired over time, simply by creating and managing businesses. If you do not have much experience, it is advisable to start small, beginning with a small business, taking some risk, and making decisions without fear of making mistakes or fail, knowing that mistakes and failure is where one learns more.

2. Lack of capital

Another reason why businesses fail is lack of capital. Problem that arises when one has not produced good budget expenses, do not get the expected sales or the company grows too quickly and there is not enough money to take supply.

To address this problem, before starting a company, the first thing to do is develop a good business plan that allows us to make a good projection of both the expenditure and revenue, which, in turn, allows us to calculate what the capital requirements necessary to implement the business and to operate during the first months of life.

Another way to address this problem of lack of capital, is to seek to minimize investment (for example, by comparing either the prices of inputs and equipment, choosing rather to suppliers, etc.), But without sacrificing quality.

3. Low sales

An obvious and common reason why businesses often fail is the low level of sales that come to get.

The reasons for low sales obtained may be several, perhaps picked a bad location, not properly segmented the market, it offers a quality product; it provides a good customer service.

The main ways to combat the problem of low sales are to provide a quality product, provide good customer service, perform sales promotion, and increase advertising.

4. Poor location

A bad choice in the location of a company is another common reason that companies often fail.

The location of a business is an important issue that we must take into account if we want to avoid premature failure, however, succeed.

When choosing the location of the premises of our company, we take our time, find good alternatives, and choose carefully, taking into account such factors as our target audience, competition, crowd, costs, accessibility, visibility, etc.

5. Excessive competition

And finally, another major reason why businesses often fail is excessive competition.

Often creates a company that does not have much competition initially, but soon, especially if the company begins to succeed, new entrants are beginning to emerge that will make every effort to seize their market share.

The main ways to deal with the competition are to provide a quality product, a unique, original, innovative and different, and in providing excellent customer care or service.