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Why small businesses fail?

Business Growth

We have all been there. Almost done for the day, your computer shut down and jacket at the ready when an urgent request lands on your desk and your manager and teammates are nowhere to be seen. It is at times like this that you contemplate how amazing it would be to be your own boss, come and go as you please and call the shots. While the thoughts of running your own business can be exhilarating – managing your own time, making your own decisions and not having to answer to anyone, is not at all as plain sailing at is seems.

There are many reasons why small businesses fail. Most don't even try really hard to make it, and often fall at the earliest hurdles. Not surprisingly, the end-result is that it's only 1% of startups that actually make it. Here, we examine why some small to medium enterprises (SMEs) do not even get out of the starting blocks.

Business started for the wrong reasons

Many people start a business with an idealistic view of making lots of money. Surely being the boss will mean that you can work as and when you like, and you'll get to spend more time with your friends and family? The reality is different. Such aspirations often take years of hard work to achieve and are not good enough reasons to go down the path of setting up on your own.

Being passionate about your business idea and strongly believing in your concept, your product and/or service, and the need it could meet in the real world is essential. It is all fair and well for you to think that you have the most incredible idea for a product or service that people could not possibly live without, but you should first complete sufficient background research and investigations to determine how the business might work. Figure out how best to generate revenue, and when that is likely to happen. Obtain evidence to support that there is a genuine market for your idea. Analyse your competitors and clarify how you'll be able to differentiate your startup.

Poor Management

Many startups frequently lack relevant business and management expertise in areas such as finance, marketing, buying, selling, production and hiring and managing employees. You might be the creative genius behind your business idea, but even you need to know your limitations! You cannot be an expert in every area of your business so get help if, where and when it's needed. Educate yourself in areas where your skills may be lacking, or outsource work in a particular area to external specialists who can help get you and your business up to speed and where it needs to be to grow.

Reflect, not neglect – Remain focused on all areas of your busines

Burying your head in sand and overlooking particular aspects of your business can also lead to its demise. You need to ensure that you're on top of all areas of your business operations by continuously studying and keeping up to date with market research and your ever-changing customer data, items which often fall by the wayside as a business becomes established.

Lack of Leadership

You may be the boss but remember you were once on the other side of the desk. As your business grows over time, however big or small, try to create a work environment which is comfortable for your team and encourages productivity. Your business is your labour of love. Train your people to be your brand ambassadors and most importantly of all, be able to delegate! You will face many obstacles along the way. So, be a good leader. Remember to keep your head, think strategically, see the bigger picture, and get everyone on board on how to make your dream a reality.

Insufficient Capital

You have the idea. Tick, money in the bank. However, you also need to consider the cost of running the day-to-day business, and not just the cost of starting your business. Not having sufficient operating funds to get your business off the ground is another challenge small businesses regularly face. Lack of understanding of your business cashflow means that some startups are often forced to abandon ship before they have a chance to set sail. The instances of small businesses being an overnight success are few and far between, and most take quite a few years to take off. Statistically speaking we're talking 8 to 10 years, with the possibility of 4 years or less if the idea is really amazing. Be realistic about your expectations on your revenue and how much of your product and/or service you can sell. You will need to have enough money in the bank to cover all outgoings until your sales can eventually pay for all the daily costs incurred.

Right business, wrong location

Location is critical to the success of most small businesses. Think of where your key customers are, when thinking of where to setup shop. If your business is dependent on walk-in traffic/footfall, it is a significant disadvantage if you're based in an industrial estate. Likewise, if your business is such that customers or clients would not be regularly visiting your business establishment, the ideal location for your startup could be your home.

Poor Planning

As the adage goes, 'By failing to prepare, you are preparing to fail…'. As anyone who has ever managed a successful event, project, bid or campaign knows, proper planning is essential for success to follow. Central to setting up your own business is a realistic, accurate, current and projected business plan. This should include:

  • a description of your business, vision, goals, and keys to success;
  • an analysis of the market - including a competitor assessment and market trends;
  • your marketing and sales strategy;
  • your workforce needs;
  • your implementation roadmap - including your plans for managing company growth;
  • potential problems and solutions; and
  • your financial projections - including a balance sheet, income statement and cashflow analysis, sales and expense forecast.

Too much, too soon - Overexpansion too early

Another common cause of small business failure is when owners confuse their success with how fast they can expand their business. Slow and steady wins the race as they say. As difficult as it may be once the business is picking up, wait until you have a solid product and service team in place before you really pick-up the pace. Don't focus on business growth until you're ready for it. For example, if you find that your customers are not receiving their orders in a timely manner, or your employees are chasing their tails to keep up with customer or production demands, then its definitely time for you to invest in making your core business processes more effective and efficient so that they can support growth in the business. With that done and dusted, if you surprise yourself with a lot of new customers, you'll be able to easily transition to the level you need to grow exponentially. Otherwise, you'll easily be caught on the hop, which could be devastating for your business if you find yourself unable to cope with your increased customer demands. Remember, the idea is worth little or nothing, but execution is everything. Implementing a viable business model is essential to building a successful business.

Being Unsociable

Frankly put, in this day and age, every business needs a website and social media presence. While this may not be high on your list of priorities as you start out, a basic (but professional) website telling people about your business, where and how to find and contact you, and how to avail of your products and services is simply a must. Similarly, using social media to interact with your customers plays an important role in your overall marketing strategy. A relatively cost efficient channel, social media helps you build brand awareness, connect with your existing customers, and attract new ones. Key to this is to actively post on your social media pages whether they be on Facebook, Twitter, Instagram, LinkedIn, Snapchat, Pinterest, or another media channel. Create a schedule to regularly engage with your followers by updating them on promotions, sales, new products or even general news about your business or business sector.

At the end of the day, as the owner of your own business, you are the secret to its success. Keep your chin up when the going gets tough, ride out the storm with drive and determination, and remain positive throughout. What does not kill you, makes you stronger. Learn from any setbacks you encounter, learn from those around you, and you will have what it takes to succeed.

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