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Why do Businesses Fail? Part VI
Courtesy of Maneno..org
My name is Donald E. Mitchell, and I am an entrepreneur. I have a Doctorate of Business Administration in Entrepreneurship and Business Management, and an MBA-Marketing and Bachelors in Marketing and graduated Cum Lade as an undergraduate. This week we shall continue with this 10 part series of “Why Do Businesses Fail?” as one who has practiced entrepreneurship for over 40-years has come up with a list of 9 issues on why businesses fail. Now, this is not an all exclusive listing, but some areas that I have found that contribute to business failures.
Entrepreneurial Lack of Experience
For one to be considered an expert in a particular area, they must have practiced for 3-5 years in a specific field. For example, one may be a good cook, and family and friends encourage the would-be entrepreneur to open up their restaurant. So, the question is, have they ever worked in a restaurant? Then, there are other questions of operation and experience such as do you know how to order for a mass amount of people, and then after the day’s shift is over do they know how to store the remains for the reusable for another time.
Lack of Knowledge
In the words of Delta Mu Delta, “Knowledge is Power.” One venturing out on an enterprise with little or no knowledge is dangerous and foolhardy. The entrepreneur needs more than an idea he or she needs knowledge of the field of endeavor in which they plan to practice. I know this be a fact. The first 10-year of my entrepreneur beginning was chaos; I was an excellent salesman but lacked business acumen, and had to learn business principles on how to make a profit. However, being a student of business and continuous practice, I was able to turn the losing process around.
Researchers have found that acquiring a bachelor’s degree or higher can increase the stability of the success of a venture. The curriculum that is studied adds to the over-all cognitive and analytical growth of solving problems that are always present in an entrepreneur’s life. Thus, the understanding of how to research an issue and to know all problems have an answer, one must be patient as they seek the answer through research.
Commitment to work Long Hours
Working as an entrepreneur is hard work. Often limited budget, staff, and the entrepreneur have to wear many hats. The skill-set of the entrepreneur is critical to move the venture from startup to operational, where it is now a going concern. Family is one of those pressure points that need to be in line with the overall goal for the entire family. As any career entrepreneurship must be taken seriously, and ample time must be allowed for the entrepreneur to grow the business without pressure from the family for social events.
Sacrifice is shared, the missing of various social events now for a better tomorrow in the future. Nevertheless, if the entrepreneur does not have harmony at home, the mental pressure to satisfy family life will weigh tons on the business operation. Those areas that should be done for business’s sake will not be done for the family’s purpose and could be the wedge that destroys entrepreneurship. I have had the good fortune of complete autonomy in my marketing agency for the betterment of its growth and operation with little of no issue of the input in long hours to move the enterprise from startup to operational phase of making money.
Lack of Investment in Self
As in all careers, investment back into the self is needed. Just think for one to stay on top of their game they must stay abreast of what is happening now. The world is continually changing some technology that is apparent today some twenty years ago were not even invented or were in their infancy; for example, the internet and cloud computing. Now today, one will find it hard to operate their day with the usage of either of the two. Going back to school to finish up those degrees, with new knowledge to add to the legacy way of doing things. Workshops, seminars, and other networking programs and studies to add to the continuous learning process to stay current on the business ecosystem and relevant in today’s business world.
Continued Equity Investment
In the beginning, the entrepreneur will borrow money from friends and family to launch their enterprise. Thus, it is up to the entrepreneur to continuely to find money to put back into the enterprise, and if the entrepreneur is not investing their money, why would someone else invest theirs if the entrepreneur is not sure of its investment? Thus, this is the basis of entrepreneurship investing until profits can be, had, which can be a long process. Nevertheless, this is a continuous process until the operation can take care of its self by turning a profit.
Since there will be a constant investment back into the enterprise, the question is, which is better equity or debt financing. With equity, the money does not have to be paid back; however, stake in the business given instead of pay-back. Whereas, in debt, the lending institution is not interested in owning any parts of the company; they look for the fixed payment of the principal plus interest until the loan repaid. Most organizations need external capital to grow, and the usage of debt capital can be the difference between growing and stagnation.
Lack of Budgetary Restraints
Another area that can collapse a business is not having a working budget. Budgets are essential in knowing where the money is coming in and going out. To spend without planning just because one sees money in the bank is a sure recipe for bankruptcy. Living a lavish lifestyle and not planning financially for the future of the going concern is a critical approach to the operation of the business. Learning to live within one’s means and not going beyond them will find the organization will prosper and its sustainability for the future with being adhered too.
Lack of executing the Plan
You will find there is no lack of planning. It is the execution of these plans that get bogged down. Preparation is vital to the operation and growth of growing concern, but followup and executing the program is what brings all the other areas inline. Without execution, you find it all to be a pipedream.
There is no one silver bullet on “Why Businesses Fail.” However, these that I have noted can add to business failures. Education, and staying relevant in today’s business climate and embracing the old and staying open-minded to the transitions of new approaches to doing business will keep one above the curve of sustainability and less likely to fail.
We will continue next week with part VII of “Why do Business Fail?’. And as always, let us know what you think in the comments.