The biggest reason is lack of proper financing. It is human nature to underestimate the amount of money that will be needed to start up and run a business. They also fail for other human reasons the entrepreneur becomes isolated, people find that they don't like the business they have chosen (say, a franchise cleaning company), they find the time commitment too onerous, and, in the other direction, they are not working steady hours or paying careful attention to sales, finances, and customer service. Businesses fail because there is too much competition or when the owner has not done a careful and objective analysis in writing a business plan. Growing too quickly can be a real problem. Neither money nor management can keep up. Business partners have a falling out, because either they do not get along personally or they have a disagreement about the direction of the business.
When do you know if you are ready to start your own business?
When your business plan has been written and vetted by advisers (accountant, lawyer, banker, investors, respected colleagues). The entrepreneur also must have saved at least six to eight months bill money to pay basics such as rent and utilities, paid down charge cards and eliminated as much personal debt as possible, and have at least a year of capital to run the business. (This all assumes he or she is going to do this full time). You are ready when you have incorporated, have a banking relationship of some kind and a place to run your business. Push the button!
What goes into a reality check?
Firm grasps of the risks and real honest grasp of what can go wrong. You have asked your advisers and other trusted colleagues to give you an honest, firm opinion of your ideas. Is there a "Plan B," and if so, have you vetted this, as well? Do family and friends support the decision to go out on your own time away from them, less money for household expenses, cheaper vacations (or none), and so forth. Most of all is there excitement and enthusiasm for the business, or is it just an escape from a boring job?
• It's often best to start small with less risk, and see if you like the business or enjoy being an entrepreneur.
• You can never have too much cash at start-up time and when running the business.
• Buy used and spend as little as you can in overhead, unless yours is a retail business or one that has to make an impression on the customer.
• Ask for advice and follow it.
• Be flexible. Your Plan B might be the real business.
• At the first signs of trouble (sales, cash much less than thought), slow everything down until you can figure it out.
• Constantly test your business model, paying close attention to your competition. Sometimes it is a very small change in your business that makes it successful.
• You need repeat customers and you need referrals or good PR about your business.
Dawn House Paul Christopher, author