Owning a business is a dream for many people, but there is a reason why half of all businesses don’t stay open for five years. From bad management to a change in business conditions, there are numerous ways businesses can lose money.
Failure to add value
History is littered with great ideas that failed to catch on, such as Betamax movies and Apple’s Newton personal digital assistant. If your product is not something that people really want or need, even if it seems like a great invention that makes life easier, it’s unlikely to sell, and your business will probably lose money.
Targeting the wrong market
Many businesses lose money and fail because they don’t know who they should be selling to. When I opened my chain of cellphone stores, I knew who my target demographic were. And I attribute this to the success of my business.
Most emerging technologies are marketed first to young people and early adopters. Do you think Google or Facebook would have been successful if they were marketed toward senior citizens?
Changing consumer tastes
There are numerous instances of once-successful businesses that start to lose money because their products fall out of favor and they either can’t or won’t adapt. A perfect example of this is Blackberry. The Canadian technology firm for years had a stranglehold on the PDA market, but then smartphones came along and no one needed a Blackberry any more. The company failed miserably in its efforts to adapt and went from a hugely profitable company to one on the brink of bankruptcy.
Changing economic conditions
Most businesses large and small have lost money at one time or another through no fault of their own because economic conditions became unfavorable. Unless your company sells a consumer product that people can’t do without, such as soap or toilet paper, you are likely to run into a rough period when the economy isn’t doing so hot.
Probably the easiest way for a business to lose money is for the owner or managers to fail to manage the business properly. Not keeping a good handle on costs can make a business lose money even if its sales are on target. Many new businesses see initial success as a sign that they need to expand, which can cause the business to lose money if not handled properly. Theft by management or employees is another reason businesses lose money.
Most ways businesses can lose money are within control of the owner. A solid business plan, good management and strict cost control gives most businesses a good shot at success.
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