Why Businesses Fail – The 7 Main Reasons

Do you know why businesses fail? Are you new to business? Struggling to stay afloat? Need a sales boost? Run out of fresh new marketing ideas? Is your business working for YOU? Or are you working for IT?

Fundamental shortcomings in business planning are a cause of many businesses failures. Knowing the 7 main reasons for business failure is critical. Your business plan must be realistic and based on accurate, educated data. Future projections must rely on knowledge of your chosen industry, the economy, the market, your potential customers and realistic sales targets.

Commencing a business is not a casual undertaking. It is not a hobby and it is not some game where you start today and quit tomorrow. Budding entrepreneurs often commence their business with a few hundred dollars. However, by doing this you may run the risk of having to raise more capital.

If you don’t have a strong success mindset, you should not waste your time and money by going into business. The market place can be very unforgiving. Starting from scratch is not easy. In fact, a large percentage of small businesses fail in the first year and most are gone within the first five years.

Research shows that Business Owners fail for 7 common reasons.

1. Poor Management Skills. Business owners often try to do everything themselves and refuse to delegate. This problem is one of the most common because business owners know their industry but fail to realise that they need to learn how to manage the business.

2. Failure to Plan. You should always start by checking out the competition. Planning is good business management practice. Inadequate planning often translates into poor management functions. Good business practice includes planning your research, planning for expansion, sales and marketing planning, and recruitment planning.

3. Inadequate Cash Flow. This is the primary reason for a large percentage of business failures. Many otherwise asset rich companies find that they are, for all practical purposes, insolvent simply due to lack of cash flow. Cash flow is the balance between your income and your expenditure. When these get out of balance, or your timing is wrong, your business is drained of its lifeblood.

4. Keeping Sloppy Business Records. This can lead to flawed business forecasting and potential taxation problems. Poor business systems can result in higher costs, lost time and inefficiency.

5. A Lack of Sales and Marketing Skills. Inadequate Marketing Systems produce poor customer service and an inability to attract and retain satisfied customers.

6. No Market Potential. Many businesses fail because the market for their products or services is too small or specialised to support them. Thorough and accurate market research and analysis is vital when starting a new business.

7. Failure to Seek Help. Having a network of professionals in place is critical for business longevity. A good Accountant, a trustworthy Legal Advisor and an experienced Business Mentor are critical if you want your business to grow and succeed. Learn to network with other business people. Find out what advertising and promotional techniques are working now. Educate yourself. Go to seminars. Learn from the experts. Be open to new ideas and strategies.

Business Financing: Using Business Seller Financing

What Is Seller Financing?

When selling a small business, one of the most important things you need to consider is where to find your prospective clients, and how you can attract them to buy your business. Seller financing is one of the things you can offer to attract a wider scope of prospective buyers. There may be a lot of buyers who will be interested in your business and they have the skills to run and manage it properly, but lack of financing prevents them from buying it. You will surely sell your business faster for the price you want if you try to understand buyers’ motivation in purchasing your business, and if you are willing to accommodate the buyers’ inquiries.

What Is Business Seller Financing?

At some point in owning a business, you may admit that you just suddenly want to sell your business for X amount. You may have arrived at this estimated price by using a combination of valuation methods. These include analyzing the sale price of related businesses for sale in your location and other areas, determining the corporate assets’ value, and factoring potential growth of revenue. Whether or not the buyer agrees to your asking price also relies on a number of factors, but the most important of all is business financing. Not all aspiring entrepreneurs have enough cash on hand to buy a small business. Most of them have money for the down payment and they plan to pay for the balance via loan transactions. Credit unions and banks are the ones to turn to for business loans, but due to current condition of the economy, business and consumer credit markets have become strict and tight on providing loans. With this, aspiring business owners turn to business seller financing, where the owner of the business for sale acts as the lender.

Why Offer Business Financing?

The following are some of the reasons why you ought to consider seller-based financing when you sell a business:

The interested buyer intends to meet your asking price but is short on available cash to pay the amount in full.
The interested buyer has excellent credit and a solid knowledge of the industry. However, he is unable to get financing due to current economic conditions.
You wish to lessen your tax liability by receiving the profits of the sale in installments instead of a lump sum.
You want to retain some control over the company during the transition process to ensure its ongoing success.

Seller Financing: How Does It Work?

Being the owner of a small business for sale, you may want to check the credit status of every potential buyer of your business. The information you need to examine are net worth, credit history (commercial and personal), as well as the experience the buyer has in your industry. Surely, you want to be certain that the buyer will run the company successfully so he or she can pay you on your loan. Some business sellers ask for a higher down payment compared to banks and other credit unions because the risks are significantly higher. This process attracts buyers since you are willing to invest time and money for their success. Once you and the buyer have agreed on the sale price, interest rate, and loan period, you can offer 7 to 10 years payback duration.

There are different ways to set payments. Some have varied tax consequences on the seller so be sure to consult a tax attorney before completing the payment paperwork. A straight-line payment allows the same amount to be paid each month until the entire loan is settled. It is also quite rare to find provisions that penalize prospective buyers for paying off the loan early. Any interest paid by the seller is offset by quickly gaining the use of the entire loan amount. Another payment method is based on a performance-based schedule. With this, payments go up at times of higher than average net income, and decline when sales go down.

Understanding Management Accounts To Optimize The Sources Of Finance For Small Business

There are really no business financing course which focuses on how to understand accounting when it comes to understanding management accounts. You can of course use academic books but with the information you will get from them, the probability that what you learn from these sources to match your needs as a manager or owner of a small or medium sized business is very low. Would you agree?

So the question is how to get business financing meaning how do business loans work?

Here’s a short list of things to consider

1. Develop a solid, on-going, understanding of both your financial accounts or how to understand accounting.

Remember this, regardless of the business financing model, these elements are vital when it comes to your business financing. This is the reason why understanding management accounts are skills you need to have or if not develop quickly as your financial statements tell the story of your business and most importantly your ability to manage it.

2. Ensure you have a sound personal and business credit.

When you have tried to answer the question of how do business loans work, you will know that you need to have a strong credit file. However beware that your probability of success when applying for a business loan when you are a small and medium sized business is highly correlated with both your personal and business credit histories.

3. Prepare your case, build a strong file

As a business owner, I am sure you are now aware that not only must you ensure your business runs smoothly but also that you can handle discussions and meetings with your banker or accountant when it comes to your business financing.

To do so skilfully and with confidence, first of all, you can answer if anyone asks you how do business loans work as when you are applying for a business loan, you no longer feel paralysed and hopeless. When your understanding of management accounts is under your belt, then you are ready to build a very strong and solid credit file. You now need to focus on assembling the important pieces to make you have everything you need to make it happen. Think of the lender as a customer to better understand what they’re looking for. Then, develop a business proposal that addresses all their potential needs and concerns.

4. Sources of Finance For Small Business: do your research!

Beware when you are researching your sources of finance for small business. What lenders focus on is credit history and net worth. There are a wide variety of financing sources and you might want to take into account different criteria such things like industry, sector, and geography when looking for business financing sources.

5. Choose the Right Lender

The best formula to select the right lender for you when applying for a business loan before making any formal application is to ensure that it has the specific terms and conditions you are looking for in terms of length of the loan, fixed or flexible are and that this lender has a good lending track record.

6. Do NOT rush into the loan application

Like for any important and big decisions, applying for a business loan follows the same principle. DO NOT rush into it, in other words do not jump on the first offer. I understand you might be under incredible time and money pressure but DO take your time before you commit yourself. The time you invest in comparing the different options you have will ultimately save you considerable time and money in the long term and also avoid many headaches.

7. Do NOT Procastinate

Well, it is true that I just said not to rush when it comes to choose the right sources of finance for small business. However that did not mean not to do ANYTHING either. This is a huge difference to make. You want to get things done and even if you have to go through a painful process, this is a must do process to overcome so that you can get what you want: get finances for your business


No matter what your business financing needs are, do not wait. Start investing your time becoming a master at your business financials, develop your skills and knowledge with how to understand accounting so that you will know how do business loans work. You will therefore have the right tools in order to get the financing you need with certainty and a high success. Think how exciting and what a relief it will be the day the money will be wired into your account and you can take your business to the next level.