Small business

Why Do So Many Small Businesses Fail?

why do so many small businesses fail

Most small businesses fail because the people who start them have no idea how to start, build or run a business.

In truth, small business failure rates are greatly exaggerated. And of those that do fail, much of what caused them to fail could have been avoided. The hard cold reality is, not everyone is cut out to be a business owner.

There are many types of entrepreneurs, as there are brands of craft beer. And what totally works for one person and their brand/business, would prove to be a disaster for someone else.

It’s NOT about templates and everyone else approach, it’s about you, that person staring back at you in the mirror.

Here is why so many small businesses fail, and how to solve these problems

1. Poor Management

Many a report on business failures cites poor management as the number one reason for failure.

New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees.

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Unless they recognize what they don’t do well, and seek help, business owners may face disaster. 

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To remedy the problem, small business owners can educate themselves on skills they lack, hire skilled employees, or outsource work to competent professionals.

Neglect of a business can also be its downfall. Care must be taken to regularly study, organize, plan and control all activities of its operations. This includes the continuing study of market research and customer data, an area that may be more prone to disregard once a business has been established.

2. Insufficient Capital

A common fatal mistake for many failed businesses is having insufficient operating funds.

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New business owners often don’t understand cash flow or underestimate how much money they will need for startup and they are forced to close before they have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales.

It is imperative to ascertain how much money your business will require; not only the costs of starting but the costs of staying in business.

It is important to take into consideration that many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. This business startup calculator will help you predict how much money you’ll need to launch your business.

3.  Location, Location, Location

location is critical to the success of most local businesses. Whereas a good business location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the best-managed enterprise.

Some factors to consider:
Where your customers are
Traffic, accessibility, parking, and lighting
Location of competitors
Condition and safety of a building
Local incentive programs for business start-ups in specific targeted areas
The history, community flavor and receptiveness to a new business at a prospective site.

4. Lack of Planning

Anyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning — and hard work — success would not have followed. The same could be said of most business successes.

It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future.

Components should include:
Description of the business, vision, goals, and keys to success
Market analysis
Workforce needs
Potential problems and solutions
Financial: capital equipment and supply list, balance sheet, income statement, and cash flow analysis, sales and expense forecast
Analysis of competition
Marketing, advertising, and promotional activities
Budgeting and managing company growth
In addition, most bankers request a business plan if you are seeking to secure additional capital for your company.

5. No Website and No Social Media Presence

if you have a business today, you need a website and a social media presence. Period.

At the very least, every business should have a professional-looking and well-designed website that enables users to easily find out about their business and how to avail themselves of their products and services.

If you serve local customers, your website should include your address, phone number and hours of operation, and should be listed in Google My Business so it will show up when shoppers search for what you sell by location.

(Ex: “Italian restaurants near me”) Even if you don’t have customers come to your place of business and/or you get most of your business through networking and referrals, you need a website so potential customers can research your business before they call you. If you don’t have a website and your competitors do, you’ll lose out.

You need to have social media profiles on the services your clientele are most likely to use for the same reason. If you don’t, you won’t look professional and will lose business to competitors who do at least have profiles on popular social media sites.

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If you have products that can be sold online, or you can take orders online, that’s an added benefit. But at a bare minimum, you need a website that lets customers know what you offer and how they benefit by doing business with you.

When it comes to the success of any new business, you — the business owner — are ultimately the “secret” to your success. 

6 thoughts on “Why Do So Many Small Businesses Fail?”

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