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The failure of new enterprise and visible problems for business may be traced to the following errors/oversights:

1. Lack of managerial experience or poor knowledge of the particular line of production.
   
2. Poor accounting system which results in non-availability of basic data necessary for decision-making.
   
3. Wrong/inadequate estimate of cash requirements or faulty capital planning/budgeting.
   
4. Lack of knowledge about tax-related matters.

Reasons for Entrepreneur Failure

Let’s discuss the reasons for entrepreneur failure:

1. Lack of Managerial Experience
2. Poor Accounting System
3. Inadequate Estimate of Cash Requirements
4. Lack of Knowledge about Tax Related Matters

Lack of Managerial Experience

The new entrepreneur should have all-round knowledge about the various aspects of management. He has to bear in mind the fact that he cannot afford to employ experts/specialists for various specialized jobs. Hence, he has to be an all-rounder in management or his job is a multifaceted one. As an all-rounder, he must look after:

• What, how and when to produce;
• Marketing of the products manufactured;
• Accounting systems;
• Finance.

The owner of a small-scale industry should be well-versed in all these areas. If he fails in one of these areas, that is enough to give him heavy losses, which will result in the failure of the enterprise. A technocrat may give much emphasis on technical aspects but ignore marketing etc.

Similarly, one who is well-experienced in sales may give undue importance to marketing but ignores technical aspects. So what is required is a good knowledge of all the aspects of production, marketing, accounting, and finance.

Poor Accounting System

A good accounting system would provide information regarding costs, gross margin, break-even point, etc. which are highly useful for decision-making. In the absence of proper accounting data, decision-making would be difficult and the decisions made would not have the desired effect.

Inadequate Estimate of Cash Requirements

A proper estimate of cash requirements will help the proper functioning of the enterprise. A new enterprise feels a cash crunch when, (a) production does not reach the optimum level, (b) production is below the break-even point, and (c) it fails to create and increase the demand for the product/services.

All these factors result in the depletion of cash very easily. This is because the time required for these has been calculated wrongly. Delay in any one of these activities means more cash requirements.

Hence the entrepreneur has to estimate the time and also how a month-by-month delay in starting the project would proportionately increase the capital requirements. Costs escalate with the passage of time; therefore calculations have to be made in advance taking into account the capital requirements by taking the time factor.

Lack of Knowledge about Tax Related Matters

The entrepreneur must make himself aware of the provisions relating to income tax and sales tax. He must pay special attention to sales-tax laws and regulations – especially obtaining sales-tax registration at the appropriate time, filing tax returns regularly, etc.

Steps to Overcome Entrepreneur Failure

Many studies have been conducted to identify the problems faced by the new enterprise. These studies have mainly pinpointed the above problems and the following suggestions have been made to overcome these problems:

1. Launching a Successful Venture
2. Prudent Financial Strategy
3. Utilizing Expert Input for Project Evaluation
4. Critical Role of Professional Accounting Services
5. Attracting Investors for Feasible Ventures
6. Managing Tax Obligations Effectively

Launching a Successful Venture

Make an intensive study of the proposed project/product/service. Spend a lot of time preparing budgets, cost estimates, collecting market information, etc. These are required to make the proposed venture as realistic as possible. Once the project has been started it may not be possible to consider or make changes.

Prudent Financial Strategy

Financial prudence requires that one has to adopt a conservative attitude towards estimating income and liberal expenses, at the same time there should be a wide margin of safety.

Utilizing Expert Input for Project Evaluation

It is advisable to make use of the services of bankers, management and tax consultants, suppliers, etc. to examine the proposed project and elicit their suggestions.

Critical Role of Professional Accounting Services

Accurate accounting information is vital for the running of the enterprise. Hence, the services of a professional accountant should be made use of in devising an appropriate accounting system.

Attracting Investors for Feasible Ventures

Professional investors always look for lucrative ventures. If professional investors are associated with the venture, they will scrutinize it from different angles before making any investment. This will help the entrepreneur in determining whether the project is feasible or not and give good returns.

Managing Tax Obligations Effectively

Complying with taxation formalities and paying taxes has become a regular headache for many entrepreneurs. The entrepreneurs should collect all information regarding various types of taxes such as income tax, sales tax, excise duties, etc. even before the unit is started.

They must familiarize themselves with changes taking place in taxation laws and see if the unit gets the benefits or advantages of certain taxes. Income tax and excise duties come under central laws whereas sales some under state laws.

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