Imagine you have started a business and worked very hard to make it a million-dollar company and after a few years, you notice your company is failing.

You are facing multiple problems like your revenue is decreasing, customers are shifting towards the competitors, and investors are not funding you anymore and you will be wondering why this is happening to you even though you have done everything right.

We have seen many famous businesses or brands like Blackberry and Blockbuster that were very popular at one time but due to ignoring signs of business failure, they went down the drain.

There must be lots of questions coming into your mind right now like what are the signs, why businesses fail, and what are the solutions to avoid failure.

Don’t worry!! In this article, we will cover every aspect of business failure and its signs with perfect examples.

What are business failures and their signs?

Business failure is a complex situation when companies are not able to achieve their financial goal, revenue starts declining, and firms are not able to cover the cost of day-to-day operations. It is caused by various factors that’s why it is a complex situation.

The symptoms from which you can know whether the business is failing or not are called signs. like a decrease in revenue, a rise in debt, etc.

Business failure is of 3 types-

• Minor– this is a situation in which you will only face a small step back. This can be covered easily within months.
• Moderate– in this situation company faces some difficult challenges and it is close to bankruptcy. Firms can still come out of these challenges.
• Severe– this is a situation when the firm gets fully closed or bankrupt. In this survival rate is minimal.

Business failure is pervasive. It can happen to small businesses, large or famous brands, and even startups.

When do most businesses fail? What are their success and failure rates?

• According to the BLS According to the BLS approx. 20% of startups fail during the first 2 years, 45% during the first 5 years, and 65% during the first 10 years.

                                                                                                         Success rate of startup = 25%

Failure rate of startups = 65%

• In the case of small business approx. 20% of small businesses fail during the 1 year, 30% during the second year, and 50% during the 5 year

The success rate of small businesses =30%

Failure rate of small business = 70%

• In the case of large-scale businesses success rate and failure rate depends upon various factors like profitability, market share, innovation, economic condition, managerial decisions, industry changes, and many more.

What are the signs a business is failing?

1.     Increasing debt

Taking debt in businesses is a normal thing but taking excessive debt from outsiders should be avoided because sometimes debt can lead to bankruptcy.

You should fasten your seatbelt if you are exceeding the limits.

Once you become insolvent then no bank going to give you a loan for your business. If you want to avoid debt trap then you have to do proper financial planning, control your expenses, proper asset management, and effective use of credit card.

For example– J.C. Penny a well-known store chain became bankrupt in 2020 due to heavy loads of debt.

How to avoid– minimizing debt can be very beneficial and it can be done by cutting unnecessary costs, maintaining the budget and strictly following it, investing carefully, and building emergency funds so that businesses can use them without taking funds from outsiders.

2.     No innovation

A business is successful if it comes with creative and new ideas. If a company wants to play a long-run game then innovation is necessary.

Customers will automatically shift towards your competitors if you lack innovation.

The business world is not stable and it keeps changing and if a company is not bringing new ideas then it will be left behind.

Remember- “innovation is the driver in progress and success in business”- Satya Nadela.

For example– Blackberry is a very famous mobile brand with over 85 million subscribers worldwide. It was at its peak in 2011 but it failed due to lack of innovation and Apple took the whole market after Blackberry.

How to avoid- keep yourself updated with the new technologies and keep looking at your competitors.

3. Customer base is declining

Customer satisfaction is the most important thing in the business and a business is nothing without its customers. a successful firm always listens to the needs and problems of its users and tries to solve them in the best possible manner.

A business should always be customer-oriented they should always try to satisfy their customers in the best possible way.

Satisfying customers will result in brand loyalty but ignoring customers’ needs will result in loss of potential customers.

for example– Blockbuster a very famous company in the video rental industry closed in 2014 because they didn’t adapt to changing consumer preferences.

How to avoid– fulfilling customers’ needs by doing proper marketing research, building quality products, adapting yourself to market trends, building an emotional bond with them, and maintaining strong relationships with your customers through emails, newsletters, etc.

4.     Decline in sales and revenue

This is one of the most important signs of a failing business because sales and revenue are like oxygen to any business without them no business can do further production.

It’s a primary source for any business because it helps the firm achieve financial stability and run its day-to-day operations. It also helps to repay the debts and cover various types of interest.

A firm cannot conduct deep market research or create powerful strategies if they have a poor flow of revenue because we need more money to do proper market research.

For example– Payless Shoe source a very popular footwear retailer company shut down in 2017 due to insufficient funds. They face lots of financial difficulties which lead to bankruptcy.

How to avoid– a firm can increase its sales and revenue by making quality products, increasing its online presence, satisfying its customers, setting affordable prices for the consumers, and creating a strong bond with the customers.

5.     Increasing rate of employee turnover

employees are the most important asset in any organization. Every employee is necessary for the success of your business.

Employees help businesses to run different aspects of businesses.

Most businesses don’t understand the needs of their employee and keep forcing them to work more but they don’t understand that ignoring their employee’s interests will result in increasing employee turnover.

For example- most illegal registered companies don’t care about the employees they just care about their work.

How to avoid– an employee will not leave the firm if he will feel a sense of belongingness. A firm should always try to appreciate their work because it will lead to an increment in their morale. An employee shouldn’t be overburdened. A firm should create a positive working environment with growing opportunities.

Conclusion

Running a business can be rewarding but it is not a piece of cake. It requires greater responsibility and the ability to face big challenges. Businesses should always move forward by keeping signs of business failure in mind.

You have to remember that risk and failure is the part of a successful business and you cannot avoid it, but you can minimize the impact by preparing yourself for it.

Best of luck!!