Why do businesses fail

Why do businesses fail

In economically uncertain times, the only consolation for the unemployed people is that they can always start their own business and remain financially afloat. However, as the economy worsens, a lot of businesses too have struggled to thrive and survive. We investigate some of the most common reasons behind the failure of businesses.

1. Bad business practices

The single biggest reason why businesses fail is because the owners and employees of the business indulge in bad business practices. Sometimes owners take out too much money from the business for personal spending, sometimes employees steal from the business and sometimes it’s good old defrauding of the customer which prompts customers to take their business elsewhere.

2. Lack of public demand for their products

Products that have become obsolete (like the VHS tape or the Polaroid camera) don’t find enough buyers to keep a business going. Sometimes, models that are too costly are also out of the reach of the general public and people avoid buying them and it forces a business selling them to close.

3. Economic downturn

Economic downturn makes it difficult for businesses to turn profits even if they have a large customer base. When a recession hits, the buying capacity of customers diminishes and businesses find few or no customers for their products and a forced to shut down.

4. High cost of operations

High cost of operation is the biggest diminished of a business’ profits. Without profits, there is no incentive for businesses to stay operational. Sometimes, businesses raise the price of their products to counter the high cost of operations but the most obvious side effect of doing so is that the customer loses interest in the product, begins buying a cheaper product from a rival or simply stops buying the product altogether.