Why do companies fail in their early years?

[jrineakter]

Nine out of ten businesses fail before they are three years old. That is why it is essential to know how to interpret the signs, adapt to the market, the needs of the target audience and take into account the reasons why a new business usually fails. In this way, we will avoid making the same mistakes that others have already made. Here are the main reasons why companies fail in their first years.


The truth is that many businesses are created for the wrong reason . Let's take a fictional example that we could easily find in reality. An electrician working for a construction company decides that he no longer wants to answer to anyone and that he could do better working on his own.

So far so good. This is the result of the entrepreneurial conscience that accompanies us. But this person may not have realized that although he has the skills to do a good job in the electrical field, he lacks the skills to run a successful business. Over time, his initial enthusiasm will diminish. In the end, he will close his company and go back to work for the same or another entrepreneur.

Unlike the electrician, if we italy number data create a company for the right reasons we will have a much greater chance of success . For example, having found the product or service that society is demanding and that will make life easier for a certain sector of the population.

2. Not having the necessary capital
Starting a business without enough capital will almost certainly lead to complete failure. But not only that, many new business owners underestimate the dangers of cash flow . Before we start, we need to realize how long it can take our customers to pay our invoices. This is too long for many entrepreneurs who are forced to take on expensive loans just to survive.

We must carefully calculate the amount of money we will need to start a business. And think about the following three aspects:

The initial investment required by the business. Here you will have to include the costs of opening the premises, purchasing merchandise, deposits, licenses and paperwork, company incorporation costs, etc.
The main running costs your business will need during the first year (or two). Rent, salaries, electricity, telephone, water, insurance, etc.
Interest generated by the financing obtained.
Related article: How to get financing to start a business?

3. Poor planning
Lack of planning is another of the most common reasons why businesses fail in their first years. On many occasions, entrepreneurs are so focused on achieving their dream that we forget the importance of developing a thorough Business Plan.

You should include issues such as competitor analysis, income and expense forecasts, budget and marketing strategy.

4. Lack of leadership and direction
Having sufficient management and leadership skills is essential for the success of any business. In fact, a lack of them can lead to confusion and conflict within the company, undermine employee morale and reduce productivity.

Like all skills, these can also be learned. Make sure you strengthen those in which you know you are weakest. In “ 5 Keys to Leading Your Company Successfully ” you can learn some leadership and management tactics to improve the way you relate to your employees.