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Top 10 Causes Of Small Business Failure

top 10 causes of small business failure

A lot of people dream about having their own business and being their own boss. However, not all have the good fortune to succeed in the kind of industry that they have chosen.

While some entrepreneurs profit and see their small businesses flourish, there are those that become bankrupt in less than a year.

If you have just started your own venture and would like to succeed, here are some things that you should avoid as these are the most common reasons why small businesses fail.

1. Wrong Reasons

Many people who put up their own business think that the only reason for having it is to gain profit. While money is one of the main purposes of starting a business, an entrepreneur must think beyond money.

A lot of businesses that succeed are those that are managed by individuals who value personal growth and the fulfillment that they can obtain form running their own company. It is also advisable to choose a kind of business that is based on your passion and interests rather than something that is popular or trendy at the moment.

Sit down and ponder upon your reasons for starting your business and make sure that your reasons are enough to sustain you as you manage your business.

2. No Business Plan

Another common mistake that owners of small businesses make is not seeing the importance of having a business plan. A business plan is very important before launching any venture since it will help you to stay focused on your business.

Every entrepreneur must learn how to make their own business plan as it will contain numerous important information that the businessman should know about. He can also get back to the business plan later when he faces some challenges.

What kind of information does it contain? Well, for starters, it should reflect the target market, location, price study, product research, and the capital. There is still many more other significant information in a business plan aside from these and this information can help the entrepreneur later on as he starts to run his small company.

3. Not Enough Experience

Most people that succeed at anything are those that have done it twice or many times before. The more times you have done it, the better you get at it. And isn’t it true that when we want to try something new and would like to be good at it, we should get as much familiarity with it as we can? So that when we actually do it, our chances of failing can be slimmer.

Getting some experience about the business that you plan to start won’t hurt you. In fact, it can be very helpful for you and your small company. And the more knowledge you have, the better. For instance if you plan to start a fast food restaurant, it could help you to work in one for a year or more in order to get as much research and hands-on experience. This know-how can greatly benefit you in the future.

4. Lack of Capital

One more mistake that new entrepreneurs make when they start their small business is to think that they can get a profit early. In reality, many businesses rarely show any solid revenue until after a year or so of being in business. During this time, the entrepreneur will need money to keep the business running even if it is still not showing any profit.

The capital is one of the most important parts of a business and it should be well-planned and well-thought of from the start. You should prepare the money for launching the business and for seeing that it runs smoothly for a year or so. Expect that it won’t be profitable yet at this time but will be after some time.

Unfortunately, many new businessmen have not seen this and have closed due to lack of capital to maintain their small businesses.

5. Poor Management

When starting any kind of business, it can be a great help to have some fair idea of how to manage it. You should do some research, get some experience, or enroll some management classes before launching your business.

It can be pretty disastrous to start a company that you have no idea how to run. Managing a business is not easy as it can have several aspects that you have to know about such as employee management, accounting and handling of finances, marketing, and many more.

As they say, don’t go to war unarmed. In the same way, don’t start a business without all the information you need. There is, however, another option that you can have in case you fail to prepare. You can always hire people to manage your business for you and make sure that you get the best ones to do it.

6. Bad Location

You may get everything right from the capital to the management but if you have situated your business in the wrong location, it can be pretty hard to be profitable. It helps to conduct a research for the best locations for your small business. For instance, if you’re planning to open a hotdog stand, it can be more lucrative to have it positioned near the park where many children pass by. The important point is that you’re near your target customers so that you can sell more products daily.

7. Can’t Handle Competition

In a small town where there are two barber shops, the competition can be stiff. The locals will just go to the one that they prefer more and usually, that is the one with the more skilled barber. So what happens to the other barber shop?

It can be closed in a few months if the owner does not do something about it.

But what can he really do? There are a number of options. Well, he can fire the unskilled barber and hire a more skillful one. He can also train the present one to become a better barber; perhaps send him to a hair cutting school. When you start your small business, you must be ready for competition.

You can’t just expect to be the only service or product provider in your area. There will always be another store that will sell the same products or offer the same services that you do so it would be best to be prepared for any kind of competition.

Use this as a motivation to help you improve your products and services. Competition can be very good if you look at it constructively, however, it is one of the main reasons why many small businesses fail. Some entrepreneurs can’t handle the competition or just don’t know how to deal with it.

8. Overlook The Importance Of Getting Online

Nowadays, having an online presence is very beneficial as more people who can be possible customers will be able to see your business. The benefits of putting your business in the net for all people to see are numerous.

Your contacts like family, friends, neighbors, colleagues from work and even people whom you don’t know personally can know the existence of your small company. The best thing about it is that they can contact you through your number or email even if you have not given them your card personally.

Being online is also free advertisement for your business. You can Tweet about your products or post pictures in your blog, on Instagram and even on your Facebook timeline. And it is also good to have your own website later on as it gives you more space to talk about your products and services in detail.

9. Inefficient Handling of Finances

It is probably the most common cause of businesses going bankrupt – owners spending the company money for personal use. Whether your business is a small one or your company is now big and thriving, you must be able to separate your personal money from your business money. Mixing up the two can be catastrophic.

The best thing to do is to have two separate bank accounts – one for your personal money and one for the business profits. Never use your personal money for the business and vice versa. Do an accounting for your business profits and expenses daily and keep a log book.

10. Poor Marketing

Advertising is very important to let your business be acknowledged, especially to your target market. Even the biggest and most successful companies spend millions in advertising so why shouldn’t you do the same? Well, of course, it doesn’t mean that you will borrow a million dollars to market your product effectively.

Since you’re starting a small business, a little effort can go a long way. The most important thing is to exert effort to let your brand be recognized by many people. And when you advertize your business, make sure that it is marketed properly.

For instance, if your business is a café, you can send out fliers near a university and in your fliers include the location of your shop, your delicious coffee concoctions, and other attractive aspects of your café such as the ambiance, privacy, coziness, etc.

You should also spend time in making your posters and ads. I have seen an ad where the business owner placed his whole body picture and used very small fonts to talk about his business.

Until now, I still don’t know what kind of business he’s running. If you have posters or fliers done, use clear fonts that are big enough to be read. Avoid using fancy fonts and very ghastly colors. And put only the important information so that people will know what you’re offering and how they can get there.

Starting a small business can be fun but it will take a lot of work in order to succeed in any kind of business. Now that you know most of the causes of small business failures, perhaps you can avoid doing these and have a better chance at running your company.

pauline c
By Pauline Cabrera

A twenty-something savvy web designer / social media manager / SEO strategist based in Toronto, Ontario. Passionate about web design, HTML/CSS, beautifying things and internet marketing. Follow me on social media and say hello! Follow me on Facebook Follow me on Instagram Follow me on Pinterest Follow me on Twitter

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