Why Businesses Fail and How To Avoid It

According the SBA more than half of all new business will fail within their first four years of operation. In contrast, over 85% of all new franchises will survive for more than 6 years. While no new business venture comes with a guarantee for success these statistics do show that chances of success with a franchise startup are considerably greater than an independent startup. Here are some of the type of reasons why business fail and how a solid franchise can help entrepreneurs avoid these costly mistakes.

1. Under Capitalization: A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales. A franchisor has launched several new franchises, sometimes hundreds and will have a firm grasp on the initial investment and operating capital required to succeed with its model.
2. Poor Management: Many a report on business failures cites poor management as the number one reason for failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. A strong franchise organization will place great emphasis on training its franchisees to be strong managers of their business including day to day operations, management of staff and finances.
3. Inexperience: Whether inexperience lies in dealing with the intricate functions of all business or in the business niche itself, a lack of experience is a top reason why many new businesses fail. A franchise will provide initial training as well as ongoing training and support to help fill this potentially fatal void of specific business and industry experience.
4. Poor Location: If your business is a retail, food or other walk-in or drive-by type operation then the old saying "location, location, location" is very true. Choosing the wrong location for your business can be a fatal mistake regardless of all other positive factors.
   A franchise will help its franchisees carefully research, choose and negotiate the right location for the business. In addition franchises are generally preferred by most premium location malls and shopping centers.
5. Poor Marketing and Advertising:  Even to the experts advertising and marketing often comes with a bit of guesswork. For a small business, especially one in its start up phase wrong guesses in advertising and marketing can be costly and ultimately force a business into failure. A strong franchise system will provide its franchisees with tried and true advertising and marketing strategies and collateral taking most of the guesswork out of this process. Franchises will be provided with proven methods for getting the right message to its potential customers.

*This article was originally written by Michael Ciccarelli