You would have seen the small businesses on the roadside, in a mall, or in a particular area, they can’t be neglected. Small businesses are also one of the pillars that contribute to the economy. They are responsible for the job creation, better standard of living, and economic growth. However, not all small businesses indeed succeed, Many of them fail brutally. According to the Small Business Administration (SBA), approximately 40% of small businesses fail in the starting first two years, around 50% fail after five years, and roughly 35% make it to 10 years or longer. So the question arises why do small businesses fail? What is the reason behind it?
Top 5 Reasons Why do small businesses fail?
Lack of money
This is one of the primary reasons for failing any business if they don’t have enough money to run a business then eventually it is going to fail at any cost. Business owners know that they need enough money to run their business operations, such as paying rent, buying items, distributing salaries, and settling accounts with vendors. If the income what they made from the business does not meet their expenses, they will eventually run out of cash and have to close their business at any cost. For instance, suppose you buy something for 100 and you have to pay your vendor in 10 days, but your customer pays you in 20 days. This creates a gap in your cash flow and affects your ability to buy more materials from your vendor. As a result, your business may suffer from low inventory, poor customer service, and reduced sales.
Neglecting business planning
Some examples of neglecting business planning are growing too fast, failing to take advice from others, providing poor customer service, choosing a bad location, hiring arrogant employees, and having low cash flows. When you go on a date, you prepare yourself by picking the perfect place, dressing well, asking someone how you look, and learning everything that can make your date go very well. Going on a date and planning a business are similar in many ways.
You need to be always adaptable and follow the market trends. If your business needs to change something, then do it immediately. There is no place for big mistakes but there is a place for learning. The more you will learn the fewer mistakes you will make.
Taking Loan
Plenty of people think that taking a loan can resolve their financial problems, and that’s why they borrow money from the bank at high-interest rates. However, they overlook the negative side of taking a loan. They increase their expenses and try to expand their business, but when they fail to generate the revenue what they expected. Then they have to close their business to pay off the loan.
Never go for a loan when you want to expand your business. Sometimes, financial obstacles can be overcome by spending less rather than borrowing money and spending more.
Diverting from own business
I have seen many people who divert from their own business. They start spending money on some other business rather than investing in their own. They assume that their business is on autopilot and there is no need to give it time. This leads them to face failure in their business.
Always remember, when you are in a developing stage, don’t try to chase two or more things at a time. There are many competitors outside of your business. If you show negligence and don’t work dedicatedly, you will lose your business, and your competitor will surpass you and take your place.
Work with the right people
While business planning, market research, cash flow, and product or service quality are important for the success of your small business, don’t neglect your team members. Good employees can skyrocket your small business, but the wrong employees can devastate it too. When you hire people, check whether they share your vision and can contribute 100% to the work efficiently and effectively in your company. Every member of your company should have the necessary skills and experience to perform their tasks very well. You should specify the role of each member of the company and don’t overload them with work. Just assign them what they are supposed to do.
Remember to give your employees what they want, as well as what you want from them. A good relationship between you and your company is the key to the growth of your business. If you miss any of these aspects, you might risk failing your business.
Conclusion
Learning about the potential causes of failure is also part of business planning. You may fail in business if you don’t have enough funding, market research, customer satisfaction, adaptability, and workload distribution.
So you need to gather as much information as you can from the right sources. You may still fail even after learning all these things, but once you restart again, you may also create something bigger than what you ever expected. You will realize that your failure is the biggest investment in the success of your business.
Look around yourself and see the businesses that are at a high-level today. They also started with failure.I hope you’ve taken the time to read through the top five reasons why do small businesses fail. It’s my sincere wish that this post serves as valuable insight, potentially assisting you in initiating your business journey.
