5 Surprising Reasons For Business Failing And How to Prevent Them


Each year thousands of businesses fail. While many business failures occur throughout the first three years after beginning, any business can fall short given the right conditions. Popular and accepted causes of failure include unmatched competition; below capitalization; runaway costs; unfocused attention to customer needs; unequaled global pressures.

Of course, the best reason for business failure could be the lack of cash.

But, there are actually five surprising underlying factors behind business failures: Employee burglary, Unplanned growth, Catastrophic technology failures, Poor record maintenance, and Failure to use advisors. We are going to examine each and offer recommendations on how to avoid them.

1. Employee Theft

According to the Oughout S Chamber of business, employees steal between $30 to $100 billion every year and is the reason for 30% associated with business failures. Theft may include taking money from the until, embezzlement, stealing intellectual house, and walking away with an inventory. Without having excellent controls in place, you might be vulnerable to employee theft. Here are a few things you can do to prevent it.


A trusted employee writes additional payroll checks to personnel, pays bogus bills perhaps to accounts set up by self, or investigations to cash. Sometimes company abuses check signing liberties, alters a check, or maybe forges the owner’s personal unsecured.

Prevention of embezzlement involves:

Background check of any member of staff handling money.
Being cautious if an employee appears to get money problems or frustrating personal problems (family health concerns, etc)
The business owner, or maybe an outside accountant, should open up the bank statements and analyze each check to confirm the payee, amount, as well as signature.
If practical, the particular owner should sign checks, or maybe more signatures should be required.
If at all possible, someone other than the person who creates checks should balance and examine the book.
Theft of inbound receipts

An employee diverts inbound cash or checks for you to his own account or a clod bank account.

Prevention includes:

Thoroughly watch receivables
Personally check to see if customers complain they could be recycled getting credited for their bills. Get canceled check illegal copies and examine the front along with the back to determine if they were correctly deposited in your account.
Possess two employees involved in keeping track of and verifying receipts

Money Theft

Employees who get cash in retail establishments “dip into the till”

Prevention consists of:

Establishing and following inflexible cash-out procedures that confirm that the starting cash together with receipts (printed from the register) for the day equals the concluding cash.
Verify that the dollars deposits equal cash bills.
Personally investigate customer grievances of receiving incorrect transform.

Inventory or equipment robbery

Is your inventory or tools “walking out the back door”?

Prevention includes:
Keeping accurate documentation of company-owned tools, including serial numbers.
Tag most company-owned equipment.
Preserving a record of inventory, which includes incoming and usage.
Check inventory levels with routine physical inventory counts.
End up being suspicious of inventory shortages, or more than normal inventory acquisitions.

Intellectual Property Theft

Can a disgruntled employee go out with a valuable intellectual home, such as secret formulas or perhaps customer lists? Your business can suffer dramatically if these kinds of information were to get into the particular hands of competitors.
Protection includes:
Having all staff members sign appropriate agreements pertaining to your intellectual property.
Getting a clear written policy (in the employee manual) about corporation intellectual property.

2 . Upkeep growth

The rapid growth of a profitable business may seem to be a wonderful matter and often is. However, upkeep growth can be as devastating to help a business as planned growth can be good.

A business this suddenly receives a get that is, perhaps, equivalent to 50 percent of the total sales of the preceding year may have these obstacles:
Can production, personnel, in addition to infrastructure be ramped right up quickly enough?
Can the services or products be delivered on time?
Can certainly customer quality expectations possibly be met?
Is there cash on the market to pay for material, employees, sub-contractors, etc .?
Will customer monthly payment terms provide cash in any timely manner?
Is there a personal credit line in place with the bank to produce needed cash?

Companies have got often been forced bankrupt when overwhelmed by the income challenges of sudden revenue growth.

Here are some things you can do to organize for sustainable growth:

Have a very business plan that you periodically overview and update.
Keep your eye on your economic statements, continually projecting income and cash requirements.
Preserve constant contact with your company.
Maintain a line of credit that may be tapped.
If a large revenue opportunity presents itself, seriously consider regardless of whether: it is consistent with your business program; whether it will enable continued environmentally friendly growth (or is just the anomaly not likely to happen again); can be executed to meet purchaser expectations of delivery in addition to quality; there will be sufficient income available to execute the commitment while continuing regular small business activities.
When confronted with a substantial sales order try to get the purchaser to help finance through a signup and progress payments. Decide favorable accounts receivable monthly payment terms.
Be prepared to turn down a small business that is either not ideal or which, after watchful analysis, will have a damaging effect on your business.

3. Catastrophic THE ITEM Failures

As the information grows older many businesses are totally dependent on their computer systems. A brief strength outage or server recovery time is often more than just inconvenient. A prolonged loss of servers or other regions of the IT infrastructure may be catastrophic. Many businesses are so based upon their IT system that will without it they can not method orders, support customers, and also perform daily operations. A great outage of just a few days and nights has forced companies to seal their doors.

If you are seriously reliant on your IT devices, here are some things to consider:

Have repetitive servers.
Back up data every day and verify that backup tapes (or other media) actually have the backed-up info.
Store backups inside a secure fireproof position.
Have a redundant off-site process.
Contract with a service company that gives remote preventative maintenance to your systems.
Ensure that your service plans include a suitable maximum result time, including rapid appliance replacement if needed.
Put up and keep up-to-date appropriate firewalls, and anti-virus software.
Determine and enforce suitable Online and e-mail use insurance policies.
Ensure that all of your software is existing and is supported by the vendors/developers.
If you have custom software, make certain that: you have all applicable existing source code, and there are one or more people other than the designer who knows and understands the interior workings of the software.

4. Poor Record Keeping

One particular survey of businesses filing with regard to bankruptcy reported that 58% of respondents did little if any record keeping. At a minimum maintaining good records of product sales, expenses, and debts is crucial for business survival.

Of the amazing reasons for failure, this is probably the simplest and least expensive to prevent. Here are a few things to do:

Set up a sales system that will record almost all financial transactions. Using a program like Quick Books makes sure that you will have a workable system.
Make use of the accounting system! Use it to write down invoices, pay bills, and overcome the bank statement. Print information showing your cash balance, what you are owed by buyers, and what you owe vendors.
When you have two or more employees, have a salaried service do your salaries. This will not only save jobs but will ensure that payroll documents are properly maintained knowing that taxes will be paid punctually.
Create a financial projection for at least one year that shows what amount of cash you expect to have come in every month, and how much money you anticipate to have to go out. Use this to assist and guide your business decisions.
Have a very professional (your accountant) take a look at financial records at least once per year.

5. Failure to seek and also use the advice

A business owner who also goes entirely on his or her own without seeking and taking advantage of external advice is much more likely to fail that owners who all embrace the advice from outside advisors.

Here are some adventures:

Find professionals that you are confident about and whom you confident about. These should include a brokerage, attorney, accountant, and a typical business advisor. Depending upon the size of your business, and your own capabilities, you may want to seek out marketing, gross sales, or other advisors.
Find opinions from your advisors in case you make a change in your business.
Staying in touch with your advisors. Don’t just simply contact them when you have an emergency.
Understand up front what prices will be incurred when handling your advisors.
Create a motherboard of advisors, and talk to them at least quarterly.
Many important-when you have received suggestions, act on them in order to get some great benefits from the advice.

While, as a business owner, you have the ability to handle your own destiny, you need to face the right moves and proper decisions in order to assure the particular sustainability of your business.

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