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8 Reasons Why Businesses Fail

By: Romario
Thursday, July 09, 2015
8 Reasons Why Businesses Fail

Doing business in Jamaica is even more challenging now than at any point in our young history. The effects of the global economic melt-down has not spared our island, in fact the effects are very pronounced especially in the areas that primarily depend on Bauxite and tourism. With that said, there are several other underline factors that has affected the viability of local businesses. These factors for the most part are controllable to the degree to which the business owner makes the necessary adjustments to the prevailing conditions.

Financial Mismanagement

This is perhaps one of the most persistent reasons that is identified as to why most small businesses fail in Jamaica. Lack of sufficient cash flow can slowly stifle a seemingly great business. This is because cash and not necessarily profit is the lifeblood of any business, and there will be no business once that runs out. Therefore, it is imperative that small business entrepreneurs practice strict financial record-keeping so that every penny is duly accounted for. Knowing exactly how much money is going in and out of your business will correctly guide every decision you make. Careful consideration must also be given to tax obligations. Proper financial management will also enable a company to minimize their overhead hence maximizing profit margins.

Inefficient Management

“We lickle but we talawah” is not necessarily an ideal business mantra, thou it may sound catchy. The fact is most small business entrepreneurs usually come into their industries with little to no knowledge of handling the multiple facets of a business such as financial management, employee relations, advertising and other essential responsibilities. In fact, most small business owners are typically very good at the technical hands on aspect of the business while possessing no real business skill and know how (eg. dressmakers, mechanics, chefs). Being great at what you do does not mean your business is doing great. Hire managers who have expertise in the fields where you are lacking or educate yourself through short business and finance courses.

Lack Of Capital

Very much in line with the previous two points, not having sufficient capital to properly execute growth plans or to even satisfy demand from clients is a prevailing problem in Jamaica. Many entrepreneurs think they will be making profits for their beginning operation cycles, spending most (if not all) of their resources immediately, only to find out later that they will not have enough funds to start the succeeding cycle/s. Consider every possible cost (overhead, production, equipment, etc.) and save enough money that can be used for at least one fiscal year despite poor sales. In Jamaica, access to working capital can be quite a challenge especially for industries considered to be non-traditional. Keeping proper financial records and passing earning through business bank account will certainly make this process easier.

Poor Marketing

Having a great product or service serves no purpose if no one knows about it. In fact with good marketing, a not so good product will outsell a great one any day. A small business needs to market its brand considering the tough competition it will face against more established businesses. Jamaica for the most part can be considered a consumer economy, making price leadership the primary strategy employed in gaining market share. Businesses must therefore market their offerings to gain customers, it is simply not enough to set up and expect persons to come. You need to invest enough resources into promoting your products through the right channels. This is so your target market knows exactly that you can fulfill its needs.

No Business Plan

In Jamaica, having a business plan for the most part is thought of as a luxury rather than a necessity. Persons often go into business on the back of simply knowing what their business will be and how they will sell their products or services. This is not enough, having a business plan written out, will help the business owner identify the following: • their short and long term objectives; • the business’ finances for labour, supplies, merchandise, etc.; • their target markets size and characteristics; and • marketing strategies, needs and objectives. Having clear plan, one which outlines every detail will guide your business to the right path.

No Online Presence

With more than 60% of the Jamaican population having access to the internet, whether via computers or mobile devices, people expect to find just about everything on the Internet. Not having a website or at least a social media page will render your business virtually invisible to a great majority of not just Jamaica’s population but the world. Having an online presence is critical to reaching new markets and expanding your earning potential. Investing in a E-commerce website is highly recommended, however careful consideration must be given to the back office logistics that will support such a venture.

Bad Location

It is not enough to set up a store at a location with a very cheap lease. Most likely the very reason the lease is cheap is because it is a bad location for business. Having a great flow a people does not make it a great location, this will all depend on who your ideal client is and whether they make up the flow of people that visit your location. For example,opening a coffee shop in a busy and well-populated town might seem like a good idea but don’t expect too many clients if the cultural preference of the people is to drink tea. You need to consider your target market and their habits, as well as the direct competition in the area. Don’t be afraid of spending on prime location, as the increased rate of customers coming into your store and making a purchase will make up for the initial cost.

Wrong Reason

It is often said that Jamaica has the most entrepreneurs per capita in the world, and while this may or may not be true, it certainly is not a good reason to start your own business. Neither is starting a small business simply because you want to be rich, this in fact can lead to an unfulfilled experience, where you will always be looking for schemes that can bring you fortune. Before you do, think first about your own interests and passions. Start a business in something you are passionate about and will find not just the returns rewarding but the work itself.

In conclusion, before getting knee deep in your next venture, make careful consideration for the all aspects that will affect your business viability, cash flow, business growth and profitability. You should also test your ideas before opening shop, it is better to spend a small amount of what you plan to invest and properly analyse the market than to end up in bankruptcy because what you thought was a good idea turned out to be a dud.

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