4 Reasons a Small Business Fails

Starting and running a business may not be for everyone, being an entrepreneur has its ups and downs. Successful business owners possess the ability to wear different hats concurrently.

While there are many small businesses in totally different industries that perform well and are continuously profitable, a larger portion of companies fails within the first 18 months of operation, according to the Small Business Administration (SBA) of the USA.

The lack of systems with the proper check and balances in place, small businesses will fail to achieve critical business objectives. With this said, it is necessary for entrepreneurs to fully understand what decisions can lead to business failure and how to steer their path away from such failure.

The most common factors leading to failure of businesses are the lack of capital, inadequate management, faulty management practices, and failed marketing initiatives.

Lack of Capital

Quite numerous entrepreneurs failing each year lack the funding or working capital to push through with their initiatives. The entrepreneur is solely to blame since most of the time they are aware of the capital they need to maintain an office with lots of fixed and fixed variable expenditures. Fixed expenses like salaries, rent, utilities and so forth and so on. This in conjunction with a disconnect with their monitoring of income as against expenses that lead to such income. A negative variance in the income quickly puts a dent in the business operations leading to failure of the company.

Parallel to finding working capital, an entrepreneur must apply due diligence when determining their products and or services’ pricing in contrast with competition and demand. When costs for production or acquisition, marketing, and delivery outweigh the revenue generated from new sales, small businesses have little choice but to close operations.

to protect one’s self from common financing blunders, the business owner should set realistic goals with which he or she can set a realistic budget. The entrepreneur should set a budget that would have enough to operate or start-up for a certain period. And within that time, income should more or less overtake expenses and eventually feed the business with more than enough capital from income from sales operations.

Inadequate Management

A major reason for failed businesses is that lack of business know-how by the business owner. Most cases, the business owner has not yet peaked in maturity and business experience. True, that the business owner may have the necessary skillset to manage-operate, to sell and to grow the business. Whatever skillset is present may not make up for that lack of attributes of a strong leader nor the lack of time and dedication to follow through in management of people and resources.

Business Plan and Infrastructure Issues

Small businesses tend to overlook the relevance of a well thought out business plan that is well smoothed out even before they write their checkbooks to build their office.

A sound business plan must describe the business; the business’ goals; opportunities and threats; niche and out of niche markets; budgets; marketing initiatives; and competitor analysis.

Failure to address and set up these needs of the business from within a well laid-out road map will eventually lead to some hard times within the management of the company

Such a plan is usually reviewed every quarter, semester or year depending on the volatility of the market.

Full knowledge and understanding of industry, competition, and market is a must. A company’s business model should be decided on and set up before even opening the shop. Creating and maintaining a business plan is key to running a successful company for the long term.

Marketing Mishaps

Marketing is not a fixed science, it is based more on market trends which could shift as soon as you introduce your products. Business owners more often than not rely on studies made before the planned activity. This they do blindly without a last-minute check and a “Plan B”.

Each marketing campaign or activity requires the necessary budgets, prospect reach and accurate monitoring of Key Performance Indicators (KPI)

Having realistic projections in terms of target market reach and sales conversion ratios is critical to marketing campaign success.

To not understand this is suicide and more likely to fail.