• Jennifer Callender

Why So Many Businesses Fail - And How To Avoid It!

According the SBA more than half of all new business will fail within their first four years of operation. In contrast, over 90% of all new franchises will survive for more than 7 years. While no new business venture comes with a guarantee for success these statistics do show that chances of success with a franchise startup are considerably greater than an independent startup. Here are some of the typical reasons why business fail and how a solid franchise can help entrepreneurs avoid these costly mistakes.

1. Under Capitalization

A common fatal mistake for many failed businesses is having insufficient operating funds or a realistic expectation of incoming revenues from sales. If you have started a company and things aren't working out, you've got little capital and a struggling business; you're really not in a good position to ask for another loan. Underestimating how much money is needed may force you to close before you've had a fair chance to succeed. Also, trying to stretch your finances at the beginning may mean that your business never gets off the ground, and you'll still have a lot of cash to repay. Be realistic at the beginning, and start with enough money that will last you to the point where your business is up and running, and cash is actually flowing in.


A franchisor has launched several new franchises, sometimes hundreds and will have a firm grasp on the initial investment and operating capital required to succeed with its model.

2. Poor Management

Many reports on business failures cite poor management as the number one reason for failure. Too often, new business owners lack the relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring/managing employees. A business owner must manage corporate resources, employees, financial resources, customers, suppliers, vendors, advisers and financiers. This means understanding the role as the company leader and the responsibility that goes along with directing the company, communications, building the executive team, and creating a high performance culture of execution.


A strong franchise organization will place great emphasis on training its franchisees to be strong managers of their business including day to day operations, management of staff and finances.

3. Inexperience

There are so many hats that have to be worn, from marketing and selling to management and finance, in order to run a business effectively. Whether inexperience lies in dealing with the intricate functions of all business or in the business niche itself, a lack of experience is a top reason why many new businesses fail. Entrepreneurs assume their past experience in a certain role i.e., team leader or department head is sufficient to ensure business success but that approach is unbalanced. Success in one area of business does not translate that experience as success in other major activities of the business (finance, purchasing, selling and production). On top of that, you have to understand the industry, the skills required to offer those products and services, and the trends in the industry. Fatal mistakes can be made that can cause the gradual failure of the business.


A franchise will provide initial training as well as ongoing training and support to help fill this potentially fatal void of specific business and industry experience.

4. Poor Location

If your business is a retail, food or other walk-in or drive-by type operation then the old saying "location, location, location" is very true. Choosing the right location requires that a business owner investigate the market and understand the needs of a particular community. Completing that process is key to finding an opening or an unmet need. It's a lot easier to satisfy a need rather than create one and convince people that they want to spend money for your products or services. Choosing the wrong location for your business can be a fatal mistake regardless of all other positive factors.


A franchise will help its franchisees carefully research, choose and negotiate the right location for the business. In addition, franchises are generally preferred by most premium location malls and shopping centers.

5. Poor Marketing and Advertising

Even to the experts, advertising and marketing often come with a bit of guesswork. Not only must you make sure that marketing reaches people, it must reach the right people. Big billboards may not be the way to go for an internet company, just as online ads may not be the way to go for a heavy-construction business. For a small business, especially one in its startup phase, wrong guesses in advertising and marketing can be costly and ultimately force a business into failure.


A strong franchise system will provide its franchisees with tried and true advertising and marketing strategies and collateral taking most of the guesswork out of this process. Franchisees will be provided with proven methods for getting the right message to its potential customers.


Finding that "winning" franchise isn't a journey that you should navigate on your own. We're here to partner with you to help you avoid the pitfalls of the "startup" business. Jenivid Solutions, LLC is associated with FranServ and we're Certified Franchise Consultants that represent nearly 500 franchises across 60 different industries. Not sure what would be best for you? No worries. My expertise is in helping people choose the franchise that is best for them based on their background, skills, lifestyle goals and financial needs. Best of all, I am paid like a recruiter - by the franchises, and by not you so my services are always FREE to you!

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