Reasons why small businesses fail

People go into business for various reasons.

With the levels of unemployment some people are quick to start their businesses. Others are frustrated by the former businesses and they want to set up their own. The reality is that businesses are started.  Starting a business however does not automatically guarantee that it will succeed.

There is no business that just “fails”. Success or failure is a function of laws. If you understand the laws for business success, and follow them you will be successful.

Why is it that most small businesses are failing? In some instances, some businesses will remain “small” 10 years from inception.  What is it that business leaders are not doing right that is causing businesses to fail.

We are going to look at some of the reasons and also come up with suggested solutions that can help business leaders prevent common mistakes.

Lack of research

There is need to remove excitement when you come up with an idea. You need to get to the next level where you invest in proper research. One of the common reasons for start-up businesses to failure is that there is no market need for their product or service.

Before committing time and resources into a business that is not going to meet any need, take your time and research into everything from the existing market, current and future trends in your industry, to who your competitors are, who your target audience is and what will motivate them to do business with you.  How much research have you done into your business and the market?

Poor business plan 

There are some people who are daring to jump into a business without actually having a clear business plan. Others have plans which are not actually plans in reality.

Martin Hoffman once remarked “A good business plan can help you get clear on the direction of your business, identify strategies and an action plan for you to achieve your business goals, and secure the financial backing you need to start or grow.”

Writing a business plan is an important step towards setting up your new business and achieving your business goals. In the absence of business plan, you set up yourself up for vulnerability through mismanagement.  In the presence of a business plan, and discipline you will be more focused, and stay on track.

Lack of business funding 

Cash is the lifeblood of business. In fact, cash ‘cash is king’. Even big businesses fail due to lack of cash flow. You thus need to negotiate across all aspects of your business. Be proactive.

Do not wait for too long for your customers to pay for your goods and services. Try as much as possible to negotiate payment terms with your suppliers that are consistent with the cash needs and demands of your business.

Running a business is not cheap, this is the reality as well that you need to be aware of before starting a business. You also need to be aware of the costs that are involved in setting up and sustaining the business.  Always come up with realistic responses to these. In a majority of times, many small businesses are not solid enough financially and may not be able to survive for long.

The fixed and variable costs associated with starting your business should be taken into account when you write your plan.  Rope in experts for assistance.

Engage your bankers if they have a complimentary advisory facility for you to have perspective on the financial assistance you may need in particular – whether you need to apply for a business loan, or equipment finance.

Financial mismanagement 

Even in the presence of funding a business can still fail. This is the function of financial mismanagement. Failure to understand how to manage your cash flow or stay on top of all your financial responsibilities as a small business owner can be a recipe for disaster.

Prioritise cash management for your business. If your cash flow does not add up and balance out, you will find yourself in the abyss fast. You cannot afford this risk at all.

Poor marketing 

Clients do not just come simply because you have opened shop. This is not how to promote a new business. There is need for regular streams and customers to give your business a chance to survive. You need a marketing plan to do that.  Understand the nature of your business and who your target audience is.

Develop a good marketing strategy with this understanding and come up with the right balance when it comes to attracting new customers (acquisition) and building a base of loyal existing customers (retention).

Discover the model of marketing that works for you. You may even need to strike a balance between ‘traditional’ offline marketing activities such as advertising, direct mail, letter box drops, local area marketing, posters and flyers, business to business marketing and digital marketing including having a website and using social media for business to target your audience.

There are a number of ways to market your small business on a budget. You however need to monitor and measure the results to avoid wasting valuable funds.