Editor’s note: This article was first published in June 2010. The statement that the biggest problem businesses face today is non-payment reflects the credit crisis in Spain at that time.
When we start a business, we start with hopes and with fears. If we haven’t done a proper market study and strategic plan before setting up our business, it is probably doomed to fail. In another article we discussed the most common mistakes young entrepreneurs make. It’s more thorough than the one you’re about to read.
Even if we have done all that, our business can still fail for other reasons, which we set out below.
Reasons an entrepreneur can fail when starting a business
Getting into debt with credit, loans and installment purchases
Every new business is started with money we didn’t have and had to ask the bank for. If we add our personal expenses on top of that (mortgage, home insurance, car payments, car insurance, school fees for the children, and so on), the business may be doing brilliantly and we may be making enough money, but not enough to cover all our personal and business expenses combined.
Giving our customers too much credit
The biggest problem businesses face today is non-payment. Sometimes it’s better not to sell to a customer if you’re unsure whether you’ll get paid. That way you don’t make a profit, but you don’t lose money either.
Not mastering the art of buying and selling
Although it may seem like something we all know, many businesses don’t put it into practice. They sell on three-month credit and pay their suppliers at 60 days. As a result, after a few months or a year, combined with some unpaid invoices, they can’t meet their outstanding payments.
Relaxing once you’ve had some success
Sales are going well and you can pay your suppliers comfortably, so there’s no need to make things hard for yourself anymore. Thinking this way is the surest route to a business that is up today and down tomorrow. When everything is going well, that’s the time to grow: new routes, more customers, more markets and new products. You never know when bad times might come, and you have to be prepared.
And finally, the entrepreneur’s success fever
The business is going well and I’m making a lot of money, so I’m going to trade my car in for a more luxurious one, renovate the house and not hold back on spending at weekends. That way of thinking finishes off 35% of businesses that could have been hugely successful. Taking on personal expenses and paying for them out of your business’s profits while the business is still new will bankrupt you sooner than you think.
Further reading
Featured image: Kevin Dooley, CC BY 2.0, via Flickr.
