Home Insights & Advice The most common causes of small business failure and the challenges they face

The most common causes of small business failure and the challenges they face

by John Saunders
30th Mar 19 12:46 pm

The difference between success and failure is not luck but how a business avoids committing the common mistakes that will turn the investments into ashes. For sure, starting asmall business can build a lot of enthusiasm but not every company can keep its pace of attaining its goals to succeed. With great rewards come great risks and if you don’t know how to avoid them, there is a high likelihood of a massive financial failure. Many business enthusiasts want to take their entrepreneurial dreams into reality and ended up broke less than a year. Why do most startup businesses fail? What could be the problem? Let’s discuss the 10 common pitfalls that startup gets into.

1. Unclear and wrong reasons

If you want to start a business with the sole purpose of getting rich, you’re on the wrong track. Money should not be your only driving force but your business must be anchored to your interests and passions. Even you have the right skills, it does not guarantee that your company will run efficiently. Ask yourself what kind of service or product do you want to offer to the people. Also, it’s not about selling but providing value to your customers. Another question is, are you prepared to encounter obstacles in your business?

2. Not enough capital

No business can run without funds. Before you start any business operation, you should have enough capital ready in uncertain circumstances. Many entrepreneurs fail because they cannot maintain good and consistent cash flow and they get stuck on loans and other financial debts. Business is not like a plug-and-play device. When you make a great amount of profit at the beginning, do not be complacent to put them all to fund your resources immediately. Doing this means that you do not anticipate the future cycles where you have to spend more on equipment, supplies, production, labour, and overhead costs. Save enough funds to keep your business moving when the periods of low sales and slowdowns come.If you don’t have enough capital to start, you can consider applying for business loans. Lenders like Loan Advisor offers funds for small business entrepreneurs.

3. Poor business plan

When planning, you should not just think of the present but the future situation of your business. A business plan does not stop by stating your goals but creating strategies on how will you achieve them. A good entrepreneur studies the weaknesses of his business and develops ways on how to deal with them. Write a detailed business plan and specify your short-term and long-term goals. It includes the allocated budget for business expenses as well as market analysis. Running a business without conducting a competitor and market research is like playing chess blindfolded. Go out and study the demand and see if there is a great opportunity to build a big customer base that will support your business.

4. Rushing to expand

When your sales picked up and the revenues are growing higher, don’t be so eager to spend the money to buy new equipment, create a new product, or build new facilities. Expansion may look good and tempting but it is a fatal error. Keep in mind that business is not a sprint but a marathon. Most companies suffer bankruptcy because of expanding too early. They forgot that it can increase overhead costs. Have a firm grasp of your situation right now and take things slowly. Instead of overextending your business in a hurry, try to evaluate the capacity of your business. Set realistic goals and control your excitement. Work this out consistently and everything will fall in place.

5. Poor management and leadership skills

The problem with small business owners is they don’t know how to manage and lead their business. Without the proper know-how of business operations, the company will not function properly. As a business owner, it is your main responsibility to be knowledgeable of every aspect of your business. If you think you are lacking in this area, then you need to learn and acquire skills that will help you overcome your weaknesses. Without knowing employee relations, financial management, as well as advertising, you are leading your team into confusion and slow productivity. If you are not confident in performing a specific field, you can hire someone expert to cope up with the loopholes in your company. Educate yourself more of your industry and keep up with the trends. The more you learn, the lesser chances you can make mistakes.

6. Poor location

A cheap lease can be tempting. It may seem a good idea because it can lower your expenses but you need to analyse the competition in the area. How many businesses in the same niche as you are in the place? See if it is accessible by most people. Consider also the people who are living there. How many of them can afford your product and services? Understand that people are always looking for cheaper alternatives. If the location of your business targets the wrong people, there’s a high probability that your business will not thrive. Before making a decision, observe the area and the spending habits of the people.

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