Top Reasons Small Businesses Fail
It’s no secret that a large majority of small businesses fail in the first 5 years. The question is why do they fail and what can you do to prevent problems in your own business? Here are the 14 top reasons, which may help you to determine why your business isn’t growing and thriving…
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It’s no secret that a large majority of small businesses fail in the first 5 years. The question is why do they fail and what can you do to prevent problems in your own business? Here are the 14 top reasons, which may help you to determine why your business isn’t growing and thriving.
- Mistaking a business for a hobby
Just because you love something doesn’t mean you should convert it into a business. Too often, businesses fail because the owner feels her passion is shared by others. Research your business idea and make sure it’s something that other people are willing to pay for.
- Poor planning
Yes, you must have a business plan. It can be a simple 3-page plan or a huge 40-page plan. The point is that you look at all the aspects of your business in advance and are prepared to handle problems when they arise. Your business plan helps you focus on your goals and your vision, as well as setting out concrete plans to accomplish them. And don’t get mellow—revisit and revise your business plan annually.
- Entrepreneurial excitement
Entrepreneurs often get excited about new ideas but are unable to determine whether they’re “true opportunities” and/or to put them into practice. Test every new idea against your business plan and mission statement before deciding whether to undertake it. Ask yourself 2 questions: Will this move me toward my business goals? and Do I have the time and skill to implement this?
- No diversity
Too often, small business owners will have just one product, one service, or one big client. They cling tight to this one thing because it brings in good revenue. But what if that one thing disappears? Variety and diversification will cushion you against the ebb and flow of business tides.
- Poor recordkeeping and financial controls
Yes, you have to keep financial and business records, you have to review your revenue and expense report each month, and you have to file taxes and other business-related financials. If you don’t know how to do these, or don’t want to, get help from someone who does.
- Lack of experience in running a business in general or in the industry you’re entering
There are so many hats you have to wear to run a business effectively: marketing, selling, strategic planning, finance, employee relations. On top of that, you have to understand your industry, the skills required to offer your products and services, and the trends in the industry. If you don’t know about these basic skills, educate yourself. Talk to others who are successfully running their own businesses, talk to industry leaders, get a book, find a website, get a coach, take a class, do your homework. And keep increasing your business and industry skills by attending classes or reading new books every year.
- Poor money management
You need to be able to live for 1 to 2 years without income when getting started; often businesses are very slow to get off the ground. Also, you have to create and use a realistic business budget and not constantly drain business income on personal spending.
- Wrong location
If your business runs out of commercial space, you need to make sure that you are convenient to your customers and near your suppliers and your employees.
Customers will go where they can find the best products and services. It’s important to know who your competition is, what they have to offer, and what makes your own products or services better.
- Procrastination and poor time management
Putting off tasks that you don’t enjoy will sink your business faster than anything else. You can’t afford to waste time on unimportant tasks while critical tasks pile up. All tasks need to be done; if you don’t like to do them (or don’t want to spend your time doing them), hire someone to do them for you. If your time management and prioritizing skills are rusty, hire a small business coach or take a class. Don’t wait until you’re “inspired” to do a task or you’ll postpone doing critical business tasks for a long time.
- Ineffective marketing
Learn the basics of marketing and make sure that you track the success or failure of each marketing technique you use. Understand the concept of a marketing funnel and use appropriate techniques for each level of the funnel. Dump those marketing techniques that aren’t working. Learn about newer techniques, especially when it comes to Internet marketing.
- Ineffective sales techniques
Once you have a potential client, you have to know how to lead him or her down the sales path. If you don’t understand the basics of selling, get some education on it immediately. If a selling technique doesn’t work, try another one.
- Poor customer service
Once you have customers, you have to keep them. There are 2 key points here: make sure you pay attention to what the customer wants (and how these wants can change over time) and make sure you provide quick return of phone calls and emails; proper billing; win-win problem solving; and an overall pleasant, professional demeanor.
- Entrepreneurial burnout
Owning your own business requires a huge investment of time, money, energy, and emotion. It’s easy to work long days and forget to take time off. But in the end, this only causes burnout; your motivation and creativity will suffer, and a pessimistic attitude will prevail. You’ll find yourself unable to balance your business and personal life, and both will suffer. Schedule self-care time into your work week and be religious about taking time off from your business.
Source: Karyn Greenstreet (www.passionforbusiness.com) of Passion For Business LLC helps self-employed people create the business and personal success they want and deserve. They offer consulting and coaching services, as well as educational workshops and teleclasses. Contact them at Passion For Business LLC, PO Box 331, Revere, PA 18953; (610) 346-6601.