7 Major Causes of Business Failure (And Solutions to Avoid Them)

7 Major Causes of Business Failure (And Solutions to Avoid Them)
7 Major Causes of Business Failure (And Solutions to Avoid Them)

Failure is a topic entrepreneurs would rather avoid. But failure happens, and sometimes we get to learn from it. It’s a constant challenge.

As an entrepreneur running an organization isn’t a piece of cake. Also, one must have responsibilities towards his employees and fellow persons (if running a partnership). Being aware of common business downfalls can help a person proactively avoid them. Therefore, to avoid any unpleasant situation, a business owner must be aware of all warning signs of business trouble.

“Failure is not an option.” 

What’s The Survival Rate of Startups?

Statistically, 66 percent of new startups survive up to 2 years, 50 percent survive up to four years or more, and 40 percent survive 6 years or more––as per the study “Redefining Small Business Success.” 

 What Are The Common Pitfalls In Strategic Business Planning?

Being a smart business owner, one must avoid these crucial mistakes that later become the causes of business failure

1. Not seeking professional advice

For new businessman’s, no matter how well informed they are, once a new line of business gets started, it becomes pertinent to seek professional advice––it helps ascertain whether the company is profitable or not in the long-run. 

It is good to talk to a mentor before to avoid silly mistakes later. Another advantage of seeking help is that a business owner meets people who have already done the same business in the past and knows the best way of doing it.

2. The poor management of cash flow

It is one of the common reasons that small businesses fail. Poor cash flow may arise from:

  • Increasing debtor days
  • Inadequate credit control
  • Bad debt incurred
  • Significant increases in stock levels
  • Poor accounting practices 
  • Failure to plan for expenditure (capital and/or exceptional)
  • Inaccurate forecasting by management

3. The loss of major customer 

The loss of main trade accounts could be the biggest cause of reduced turnover. As a result, the business will then offer extended credit terms and substantial discounts in an attempt to generate revenue; however, this could severely impact monthly cash flows. Therefore, it becomes essential to overcome the loss of the main client as soon as possible.

4. Lack of management control

All businesses must invest time in strategic planning to ensure that they are operating with correct margins and sufficient financial resources. Many startups spend too much time in managing minor day to day issues that they fail to address the following fundamental issues. 

  • Failure to develop a business plan
  • Wasting time fending off creditors
  • Failure to submit returns on time, resulting in penalties
  • Failure to understand markets and key customers
  • Allowing customers unnecessary discounts
  • Wasted promotional expenditure

5. Inadequate financing

Inadequate or inappropriate operating investment is the 5th major cause of company failure. Many entrepreneurs commence business with insufficient funds. How can anyone survive, especially when there are big competitors around?

  • Inadequate shareholder capital that is contribute to cash flow problems
  • Use of short term overdrafts (credit facility) for long term capital acquisitions
  • Failure to meet orders on time when demand is substantially increasing
  • Other problems like loss of a principal customer, a major bad debt, or business interruption occur.

6. Lack of good customer care

Customers are the assets of an organization. A business owner must take care of them and make them a priority. We have seen that a business (irrespective of its nature) with good customer care grows. If you do not treat them with care, they go to your competitors. 

How to stay connected with customers?

We are living in an era where it takes just seconds to connect with the world. Social media is the biggest platform for promoting businesses and then maintain its image afterwards. Always remember that, honest customer care brings return customer and those who come back also bring referral customers. But for this, it is very important to stay in touch with them via live chat option, emails, telephone calls, Whatsapp, etc. 

Learn to appreciate the customer’s complaint. Always satisfy them with the benefits of the product and offer. Do give an option of purchase return if they don’t like it. Bad customer care has killed many businesses in the past.

7.  Quitting too soon

Growing a business isn’t easy. It is hectic yet time-consuming. Quitting at early stages is the biggest reason why majority company’s businesses fail. If a business owner does not behave with patience, he might not be successful. 

The first thing is one should understand that any business done halfway is no success, and he has to strive against all the odds and failures to make a business stand. 

The Solutions

The above list is not complete, and there are numerous other causes of business failure, including uninsured losses arising or excessive remuneration. But above all, the most common reason is the failure by top-level management to manage things accurately. 

10 ways to handle the failure

  • Reevaluate your situation
  • Be prepared
  • Negotiate better with suppliers
  • Find what could work or how to rise again 
  • Do not panic, otherwise you’ll end up taking bad decisions 
  • Have a strong support network
  • Keep detailed records of each business activity–audit all paperwork
  • Establish an internal control department
  • Stay in communication with all top staff members
  • Do not dwell on it.


In this article, we have tried to sum up a few major reasons of failure which an entrepreneur would take extra care off––if a business owner can overcome the above-mentioned major causes, he is not far from being called a successful businessman.

Thank you for reading!

Read more about why startups fail and how a business person should develop a positive mindset. After all a positive mind will help you take your business to the next level. 

Try until you Succeed––– Never Give Up

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