2 Major Reasons Companies Die

There are two major causes of business failure that result in closure or bankruptcy. The first is a company’s inability to sell its products or services, and the second is a company’s inability to get paid on time, which leads to it running out of money.

1. A company’s inability to sell its products or services: Nothing happens in a company until a sale takes place and the sales person brings in the money that everybody can live off.

Besides, the law of attrition states that however successful your company’s product or service is, you will lose some of your customers every year. This is of course, quite obvious: people die, they move away, their circumstances change or perhaps they take their business to the competitor. So any company that is not taking serious steps to win new business, and this of course means new customers, will sooner or later go out of business.

One of the major reason for company’s inability to sell its products or services is inadequate sales skills. Perhaps, the company does not know how to build a prospect base; could not find enough customers who valued the product/service and were willing to pay for it; the sales cycle was too long; the sales efforts were unfocused; the sales force was not committed; and they didn’t use metrics to measure performance and provide feedback.

2. A company’s inability to get paid on time: This is simple yet often ignored. To succeed, a company does not just need cash flow, they need positive cash flow. And positive cash flow happens when the cash funneling into your business is more than the amount of cash leaving.

When a company makes sales but is not usually paid on time, they may end up with negative cash flow – the outflow of cash being more than incoming cash. You should never allow negative cash flow. That’s why a sale should not be seen as completed until payment is fully made.