Many business failures are put down to cash flow sources. However, this can be hiding the real cause. One has to ask why they exhausted their cash. It could be that there was not enough attention paid to the initial investment required to run the business in the first place. In such a case this is fault of those who prepared the cash flows and budgets. Similarly, it is often noted that a business, which runs out of cash has a considerable amount of stock remaining. In this case it is a question of the lack of forward planning. Businesses with any track record should be able to identify trends in sales and adjust their requirements accordingly.

Often it is the banks and other financial institutions are said to cause the failure by not extending further facilities. If this has happened it is because they have reason to believe that their investment in the business is at risk and are not prepared to extend that risk. Again the fault of those in the business is inadequate budgeting.

Often financial failures are caused by over optimism on the part of the business owner. This can manifest itself in revenue forecasts that are too optimistic, or costs that have been underestimated.

MARKET CHANGES
Many businesses will blame their failure on market changes, for example technology advancements have made their product or service redundant. This shows a businessperson who is not keeping up with current events that are occurring within their particular industry. Had they done so, it should have been possible to redirect the business to take advantage of the new industry direction.

COMPETITION
Many of the larger businesses folding state "intense competition" as the reason for failure. Again this begs the question, what were the management doing whilst this situation was developing?

It is obvious in this situation that adequacies exist at management levels. The art of good business is to react positively to competitive pressures, not to allow them to dominate you or the industry. Few businesses are so restrictive in their systems that they cannot react positively to danger signals from competition. Take Levi's for example. Their profits had been reducing for a few years and the position could have become critical. However, they reacted by making their product available through Wal-Mart, at realistic prices, and this has turned the company's fortunes.

GOVERNMENT ISSUES
Others will blame taxes or other issues produced from government policy as a failure cause. However, industries usually have forewarning of such measures and this should give the owners ample time in which to address whatever problems might arise.

Businesses seldom fail as a result of bad luck. It is usually a result of bad planning and lack for foresight.

Learn more about this author, Paul Lines.
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