When you start a business, failure isn’t something you want to think about. It should be exciting and your new venture! But the sad reality is, that many start-ups don’t succeed. There are many different reasons for this. The 2016 statistics published by the Small Business Administration (SBA) state that about 78% of small business start-ups survive the first year and about half of all employer establishments survive at least five years. A third survive ten years or more.
Here are our top 7 reasons why small businesses fail and tips for avoiding them:
- You start your business for the wrong reasons: Is your primary reason for starting your own business the desire to make a lot of money? Do you think that if you have your own business, that you would have more time with your family? Or maybe that you wouldn’t have to answer to anyone else? While those are all definite benefits, they are not reasons to start a business. The right reasons for starting a business should include passion for what you do, determination to grow your business and a strong belief in the services you are providing. Long term, that will make your business successful.
- Poor Management: New business owners may frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, hiring and managing employees. Unless they recognise what, they don’t do well, and seek help, business owners may face disaster. To remedy the problem, small business owners can educate themselves on skills they lack, hire skilled employees, or outsource work to competent professionals.
- Insufficient Capital: A common, fatal mistake for many failed businesses is having insufficient operating funds. New business owners often don’t understand cash flow or underestimate how much money they will need for start-up. 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.
- Location, location, location! Location is critical to the success of most small businesses. Whereas a goodbusiness location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the best-managed organisation. Factors to consider include where your customers are, location of competitors and accessibility to your location from motorways.
- Lack of Planning: It is critical for all businesses to have abusiness 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.
- Early Overexpansion: A focus on slow and steady growth is essential to your business surviving. Many businesses have faced bankruptcy due to rapidly expanding too quickly. At the same time, you do not want to repress growth. Once you have an established, solid customer base and a good cash flow, let your success help you set the right measured pace.
- No social media or website: If you have a business today, you need a website and a social media presence. If you don’t, your competitors will and you will be left behind. That’s a fact. 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. You also need to have social media profiles in place. Your customers will expect you to be on social media and if you’re not, they will simply go elsewhere. You won’t look professional and will lose business to competitors, who will have profiles on popular social media sites. Technology is only evolving, especially online, so it is in your best interests to keep up with it; for the sake of your business surviving.
