Seven Reasons Why Most Small Businesses Fail

Published on Nov 14, 2013




© igor - Fotolia.comAccording to Bloomberg, 8 out of 10 small businesses fail within 18 months after operations start. Small businesses are often referred to as the backbone of America but it takes more than bravery and a good idea to make your enterprise work. Consider these seven reasons why most small businesses fail and how you can avoid the pitfalls.

Reason 1: Inflexible or Wishy-Washy Business Owners

On one end of the spectrum, certain business owners are completely inflexible and set in their ways. They cannot handle the inevitable changes that occur in a dynamic marketplace. Conversely, wishy-washy businesses owners want to please everyone and seem to be running a popularity contest. Either way, these two types of business owners are likely to fail. Effective business owners are flexible without bending over backwards. They realize it is crucial to make tough decisions to keep a business productive and profitable. While they seek the advice of knowledgeable people, they are not guided by the opinions of others. Wise entrepreneurs realize perfection is impossible and the only constant in business is change.

Reason 2: Mathematical Ignorance

Often people go into business with little or no knowledge of basic accounting procedures. Mathematical ignorance is dangerous. Business owners cannot properly gauge costs, profits and losses. It can also cause them to make costly errors when submitting their taxes. Mathematical ignorance is not a value excuse to your associates, customers or the IRS. Invest in a program such as QuickBooks to help you complete essential accounting tasks. Outsource the job to a skilled bookkeeper or accountant. Thriving businesses know how to play the numbers game and win.

Reason 3: Inexperience = Ideas without a Plan

Having great ideas is not enough to create a fantastic business with staying power. A lack of experience is a leading reason why companies fail in less than two years. You might have the best product or service innovations by they are meaningless without a plan. Define your goals for the next month, six months and year ahead. Enlist the assistance of other key players with skills that complement your own. Create a succinct business plan so you have a road map to follow as your business takes unexpected twists and turns on the way to success. A business plan also helps you qualify for loans and other financing, which leads us to the next reason why businesses fail.

Reason 4: No Nest Egg or Credit Options

It really does cost money to make money. You must invest in certain equipment to fulfill your job responsibilities. Independent contractors and/or employees must get paid on time. You also have to deliver what your promise to customers in a timely and accurate manner. Sometimes this is impossible without extra cash to make it happen. Have a nest egg available for business emergencies. If you are operating on a shoestring budget, line up financing and credit options. You never know when it will take a minor investment to keep the doors of your company open.

Reason 5: Unanticipated Growth at a Rapid Pace

When you start a small business, you are excited to have one or two customers. Your first big sale is a major victory worth celebrating. But what if your business starts to grow in leaps and bounds within just a few weeks? Are you ready to handle the volume of orders and leads you receive? While most enterprises start out slow, some take off right away. Have a plan in case your business becomes an overnight sensation. If you can’t meet the customers’ demands, your hot commodities get cold really fast.

Reason 6: A Plummeting Market

A little market research goes a long way. Certain types of businesses are attracting less attention as technology continues to move forward at break-neck speeds. Even big players who have been in the industry for a long time might be having trouble keeping their heads over water. For example, book stores are experiencing far less sales since the advent of eReaders and other mobile devices. A music store might be a poor investment right now. Unless you have a new take on an old concept, you might want to consider a different kind of business.

Reason 7: Failure to Market the Business

Nobody knows about your new business unless you tell them about it. Your business needs a website, business cards and its own account on social media such as Twitter and Facebook. Create a YouTube video about what your business does. Take clear photos of your products, services and business owners. People like to see what you have to offer and who is behind the business. It gives your enterprise more credibility. Create a mailing list to send email updates and direct mail offers. Talk to everyone you know about your great new business and encourage them to tell others. Offer the highest level of customer service so people want to say positive things about your enterprise.

Don’t let the dismal statistics about small businesses get you down. Many people achieve success and watch their small businesses grow larger over the years. Keep the potential pitfalls in mind and remember to bring passion to everything you do. Enthusiasm is contagious and people can’t wait to catch the vibe.

Main Takeaway: The majority of small businesses fail within the first two years but your does not have to be a casualty. Qualities such as flexibility, proper planning and effective marketing make a huge difference. It is also important to know about accounting procedures, do market research before starting a business and be financially ready for anything.