Oregon Small Business Development Center Network

What is the biggest cause of business failure?

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A look at small business questions from the Southwestern Oregon Community College Small Business Development Center (SBDC).
By Arlene M. Soto CMA, CGBP, Southwestern SBDC Director

What is the biggest cause of business failure?

There are many reasons businesses fail; lack of money, changes in the economy, ineffective management, employee turnover, theft, illness or death of the owner are just a few. According to SCORE (Service Corps of Retired Executives), the main reason businesses fail is poor planning on the part of management.

Business planning is an ongoing process that includes research, locating resources, understanding the financial statements of the business, writing a winning plan to receive funding, knowing what customers want, knowing what the competition is doing, watching industry trends, identifying key employee skills needed, hiring the right people, providing a reasonable compensation package, pricing product offerings profitably and continuing to revise the business plan as things change. There are often warning signs months or years prior to a business failing but some owners are too wrapped up in day to day operations to notice them.

So, what should you watch for to avoid business failure? Keep an eye on cash flow and financial trends. Is there enough money to pay the bills on time and still have some left over for you to take home? If not, it’s time to look for ways to increase income or reduce expenses or find funding from investments or loans or some combination of these. Get feedback from customers, are they satisfied with the service they are receiving or do they plan to shop somewhere else? Be specific and ask what can be done better to keep them shopping with you. Is employee turnover high? If employees are leaving, ask them why, then look for ways to resolve those issues. Has advertising been cut because money is getting tight? Without advertising it will be difficult to reach new customers so look for alternative marketing strategies. Find out how customers are finding your business and focus marketing efforts in those mediums. Is inventory sitting on the shelf too long? Discount it and sell it to make room for items that customers will be more interested in buying. Have costs increased but prices haven’t leaving less profitability for the business to grow and prosper? It’s time to increase prices or find less costly suppliers or product alternatives to offer.

If you are concerned there might be problems developing in your business, get help from an accountant, business consultant or a Small Business Development Center advisor who can be found at Successful business owners are proactive in dealing with issues, ignoring them does not make them go away. Don’t wait until it’s too late, take action today.

The SBDC is a partnership of the U.S. Small Business Administration, the Oregon Small Business Development Center Network, the Oregon Business Development Department and Southwestern Oregon Community College. Arlene M. Soto has been the Director of the Southwestern Small Business Development Center since July 2007. To ask a question call 541-756-6445, e-mail, or write 2455 Maple Leaf, North Bend, OR 97459. Additional help is available at the OSBDCN Web page