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The #1 Reason Businesses Fail

Source | Linkedin | Scott Hoover | CPA, Pastor, Writer

What is the #1 reason entrepreneurs and companies fail?

Is it lack of capital? 

I don’t think so. A failing business eventually does run out of cash, just like a person at end of life runs out of oxygen. But the world is full of cash and oxygen. The root problem is usually something deeper. Lack of capital is more of a symptom than a reason for business failure

Is it poor quality products or services?

I once helped a client buy an ERP add-on for QuickBooks. It was early in my CFO career and ended up being my first (and thankfully only!) failed ERP implementation. The software was buggy and had insurmountable functional issues. 

You know what? I just looked on the web, and that software company is still in business. They operate in a niche market and apparently still find folks to buy their product.

Conversely, there are stories of companies with an outstanding product or service who didn’t survive. Product quality (or lack thereof!) is important, but not a sure indicator of success or failure.

Is it failure to control receivables?

In my mind this is one of the most overlooked issues facing entrepreneurs, but usually notwhat takes a company down. Entrepreneurs are notoriously poor at being proactive about receivables, but notoriously good at collecting (most of) them in the end. In my experience this isn’t the #1 exit to Failure City.

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