10 Warning Signs of Business Failure

You can google failed businesses and you will see more than a thousand results. Many companies fold up, become bankrupt or cease to exist because they failed where they should have applied caution.

Business failure is a situation where a business can no longer continue its operations due to its inability to generate revenue or make profit. With this definition of business failure, I’m sure you can name one or two businesses that have failed.

Now, let’s take a look at what could have caused their failure.

Why Do Businesses Fail?

Business, like every other field, requires adequate knowledge, skills and training. For a business to succeed, the business owner must master the in and out of the business and the industry. If one rushes into a business without studying it, then failure might be the end result. Business failure can occur due to several reasons which include:

  1. Zero or Inadequate Planning

Running a business requires a lot of preparation which can be time and energy consuming. Before starting any business, one has to identify his/her target market, required finances, where raw materials would be sourced from, the number of employees that would be hired etc. Planning involves having a roadmap for the business, that is, thinking ahead to foresee challenges that could arise in the future and already documenting solutions to them.

Having a plan also means setting specific, accurate, realistic and time-bound goals. There is a saying; “If you fail to plan, then you have planned to fail.” Not planning at all or planning inadequately is a major cause of business failure.

  1. Poor Management

The success or failure of a business lies strongly on the kind of persons overseeing its affairs. Management involves utilizing resources in an efficient manner. Mismanaging the different resources (money, people, machines and time) in a business can result in business failure.

  1. Being Clueless About Customers’ Needs

Every business is expected to provide solutions or satisfaction in the form of a product or service to a particular need or gap in the market. However, if a business does not evaluate the needs of customers from time to time, then such business would only cease to exist in the long run because there will be little or no patronage, and this means business failure.

  1. Failure to Adapt

We live in a constantly changing world. Trends, tastes and innovations change very often and a business can experience failure if it does not put in much effort to remain relevant in the environment.

  1. Shortfall of Funds

You would agree with me that without money, little or nothing can be achieved. Finance is very crucial to every business as it is needed to keep the business running.

When there is a shortfall of funds, employees would not be paid, production output would be reduced, purchasing raw materials would be difficult and many other negative things would happen and when all that happens. This means that the business would no longer be in the market in a matter of time.

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  1. More Loss, Less Profit

When a business incurs more losses than profit, it means that it will not be able to stand the test of time. Frequent losses can lead to laying off employees, reduced productivity, shortage of stock etc.

  1. Little or No Knowledge About the Business

Rushing into a business based on hearsay can result in business failure. When an entrepreneur starts a business without carrying out adequate research on who the potential customers are and what the competitors are doing, then a business failure should be expected.

  1. Poor Marketing

Marketing is one of the major aspects of a business. The ability of a business to reach its potential customers will determine how much visibility and return-on-investment it can get. Lack of promotions and promotional strategies can result in people not even knowing that the business exists.

  1. Hiring the Wrong People

For a business to thrive, both the employer and the employees must be on the same page in terms of the business’ vision, mission and goals. When you employ the wrong set of people, they will ruin the positivity you put into the business and this would eventually cause the business to fail.

  1. Inability to delegate tasks

As a business owner, it is understandable that you want the very best for your business and what to be best boss to your staffs. However, in doing so, it is important that you do not control every aspect of your business as this might be a source of demotivation to your employees.

Failure to delegate tasks leads to business failure in the long run as all your energy and time would always be channeled into things that do not matter most.

Read Also: Financial Management: Key Strategies for Small Businesses

10 Warning Signs of Business Failure

Starting and running a business comes with a lot of optimism and enthusiasm, and this can cause one to be in denial. However, as a business owner, it is important to not allow emotions to overshadow reality.

If you constantly look out for red flags in your business, then you are on the right path, as business requires periodic evaluation.

Here are 10 signs of business failure and indicators that your business needs a quick fix.

  1. Frequent Losses

The expected returns on business are profit and not loss. When your business experiences frequent losses, then it means that you are not doing things the right way and you might have to eventually shut down the business. It is important to note that losses are inevitable in business, however when it becomes too often over a period of time, then that is a big problem.

  1. High Customer Complaints

Your business is in existence because of the needs of your customers. Therefore, it is required that you always listen to what your customers are saying. When complaints about your product or service come frequently from different customers, then you need to take a pause to observe what is happening as your business is on the verge of sinking.

  1. Low Sales

When you struggle to make sales over an extended period of time, it should be a cause for alarm. This could be as a result of being at the wrong location, serving the wrong market or not observing what your competitors are up to.

When sales are low, there would be no finance to keep the business moving and this is a red flag.

  1. Constant Problems

Problems are bound to happen in life, and business is not excluded. When you constantly find your business in problem, then it is a big issue. Treating one problem to the other instead of recording success should be checked as soon as possible.

  1. Poor Market

The products or services you render are meant for a particular set of people, but when these people are not informed of your offerings, then it becomes an issue. Your business will only be in the market, but those who ought to be your customers will not patronize you.

  1. Constant Loss of Employees

You should become extra sensitive when there is a high rate of employee turnover. Employees play a crucial role in the success or failure of a business. Hence, it is important to always listen to them. Having a high turnover of employees could mean that you are not treating your employees well or they foresee that your business would not be able to stand the test of time.

  1. Low Cash Flow

Cash flow is the net amount of money moved in and out of your business. When it becomes difficult for your business to pay suppliers and employees, run the day-to-day activities of the company, settle unexpected issues etc, that implies that failure is already looming.

Read Also: Why You Need Financial Modeling as a Business Owner

  1. Lack of Growth

Imagine feeding a baby with food every day and there is no evidence of growth over time. It simply means that something is amiss. When one puts his/her time, money and knowledge into a business, one is expected to see some evident positive change.

Remaining in the same spot in terms of customer base, cash flow, amount of goods produced or service rendered etc are indicators of a business going downhill.

  1. Too Many Creditors

This is one of the major ways to know that your business will not stay long in the market. When too many of your customers owe your business, there will be low cash flow and this would in return affect your business negatively.

Once you realize that too much of your money stays in the hands of your customers over a long period of time, then you have to reconsider the best interest of your business.

  1. Lack of Clear Vision and Mission

One of the problems of doing business in a country like Nigeria is that people start an enterprise without making their findings. They simply do business to spend as they earn. Not having a clear vision and mission statement for one’s business is like driving a car with both eyes closed; and what do you think is bound to happen?

Your guess is as right as mine, something disastrous! Lack of a clear picture of what the business would look like in short and long terms is a sign of business failure.


No one ever wishes to fail in his/her endeavours. But sometimes depressing occurrences that could have been avoided happen, this is why it is important to always seek knowledge. If your business is already sinking, you can definitely overcome it by strategizing and using the points listed in this article.

Oreoluwa Adekunle
Oreoluwa Adekunle
Oreoluwa Adekunle, a graduate of Library and Information Studies from the University of Ibadan where she merges a passion for literature with expertise in information management. With a commitment to crafting insightful content, she aims to captivate audiences with well-researched narratives, contributing to the vibrant world of writing blogs.

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