Why Small Businesses Fail and How to Avoid the Same Fate

Unfortunately, every single day across the United States thousands of new businesses fail. In fact, nearly 90% of all small businesses will fail within the first 2 years of their existence. In most cases the reason behind these failures is simply that these entrepreneurs don’t have the knowledge and experience necessary to handle the challenges and changes that owning and running their own company brings. It is with these alarming statistics in mind that we put together a blog article about why small businesses fail and what you can do to avoid this happening to you and your small business. Enjoy.

  1. Lack of preparation. This is a big one. The simple fact is that your business’s stability and eventual profitability depend on the planning that you did before you even open your doors. Many small business owners get started without even so much as a business plan to guide them, a mistake that can have devastating results. The cure? Before you even begin to think about opening a new business put together a business plan and make sure it is viable.
  2. Lack of sufficient funding. This second mistake is almost as bad as the first. Simply put, most businesses do not start making money for at least the first few months if not the first few years. The business plan that we talked about above should give you a very good idea about what your operating costs will be. A good suggestion is to have enough funds on hand to cover at least a year’s worth of operational costs.
  3. Inadequate marketing strategies. No matter how good your products or excellent your services if nobody knows about them you will be hard-pressed to sell them. The cure? A well planned and well run marketing strategy, including advertising, public relations, social media, SMS text message marketing and mobile marketing to name a few. Professional websites, the location of your brick and mortar store and your relationship with other local businesses and vendors are all important as well.
  4. And unreliable supply chain. As delicious as the pizza and pasta that you prepare at your new restaurant are, if your suppliers don’t show up on time and you run out of tomato sauce you’re going to sell a lot less product. The cure? Cultivate relationships with responsible providers, research networks and find people who you can personally deal with and work with. These relationships are vital to your businesses daily operation. Have a backup plan on hand as well as occasional problems arise even with reliable suppliers.
  5. Unreliable, rude or otherwise bad employees. Similar to advertising, if you have unreliable or socially inept employees you might have the best products and services in town but nobody will want to buy them from you. Too many or too little employees can also be a problem. The cure? If you have a moderate sized workforce or larger in your employee you would do well to delegate the task of handling employees to one of your most trusted and competent people. If it’s just you and a handful of employees be fair but firm and let them know that you will reward excellence but won’t tolerate much less.
  6. Lack of sales. Basically, a business with no sales is a business that won’t last very long. The cure? Know what your customers want (asking them if you need to) and also know what the competition is asking for similar products and services.
  7. A product line that lacks diversity. If your business only offers one or two products and suddenly sales drop off you’re going to be in trouble so make sure you have a diverse line of products and services to offer. The cure? Having something to fall back on if one or more of your product’s sales decline drastically.
  8. A bad reputation among the public. Reputation depends on a wide variety of factors; your products, services, employees, customer service and so forth. The cure? Without question a company that has a solid reputation will always be more successful than one that doesn’t. 
  9. A bad location. Not as important today as it used to be due to the skyrocketing number of Internet-based businesses, the location of your brick and mortar business is still important. The cure? Having access to walk and drive by customers, traffic, parking and safety are vital as well is having a sufficient distance between you and your competition.

Before you start any new business you would do well to make sure that you have an answer for every one of the nine mistake examples that we just talked about. If you do you will be much better equipped to succeed and, frankly, beat the high odds of failure. Best of luck and make sure you come back to visit us often as we regularly feature advice for small business owners. See you then.

Speak Your Mind