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Published: October 10, 2016

10 Reasons Most Small Businesses Fail and How You Can Buck the Trend

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It is estimated that as much as 33% of US small businesses will fail in the first two years. While this might seem disheartening at first glance, it’s probably not as bad as it seems considering the number of entrepreneurs who experience runaway success.

In this article, we’ll look at the ten most common reasons for small business failures, as well as how you can position your company to buck the trend.

1. Lack of Capital

Most entrepreneurs start out with a brilliant business idea. However, many companies are not equipped with enough capital to start or take the company to the next level. The sad truth is that without the right capital injection, many great ideas are doomed to wither away after a couple of months.

The key to solving this problem is to invest the time in determining the costs associated with starting and operating your business. Try not to overstate profits but instead, do the necessary research to make sure you have the working capital that is needed to sustain the business.

The next step is to secure your funding. Many entrepreneurs will turn to family and friends to avoid having to dilute their equity by getting a private investor. However, private loans are an excellent way to ensure continued funding for the business, especially in the start-up months.

2. Cash Flow Problems

Having just an adequate amount of funds is inadequate. Not having sufficient finances at the right time is a major problem for many small businesses. Handling cash flow is essential to keeping the doors open. However, due to unforeseen events like late payments from clients, unexpected costs, or mistakes in forecasting, a huge chunk of small businesses frequently find themselves running into cash flow issues.

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To overcome this common problem, you will need to put in the time to develop an in-depth cash flow forecast; this can be a time-consuming and intricate procedure, so utilizing technology to automate this process can be helpful. Additionally, it’s good to have a ‘cushion’, so if unexpected expenditures turn up, which they inevitably do, you’ll be able to cover them. Planning is the key to overcoming cash flow issues in a small business.

3. Issues with Delegation

Some entrepreneurs are so personally invested in their vision that they feel that they are the only ones who can do it right. Not only is this impossible in many cases, but it is also inefficient and causes burnout. A business owner who fails to train and delegate could face a serious problem if he is out sick or has an emergency.

Entrepreneurs must learn to invest in a team of staff members who can be trusted. The key is to train and then delegate. Effective delegating will leave the business owner to focus more on growing the business and identifying opportunities.

4. Ignoring the Competition

While business competition is healthy for the economy, they can be a threat to the small business owner. An entrepreneur who does not understand his rival may be setting up his business for failure. Often a company is not aware of the competition in their niche until it is too late.

To maintain your competitive edge, make certain to do an analysis of the competitive landscape. Additionally, continuously monitoring your competitors will enable you to benchmark yourself versus them, learn from their errors, and most importantly not fall behind.

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5. Inadequate Customer Demand

Many small businesses think that the product or service that they provide is the best and never consider whether there will be a market for the business.

It is important to conduct thorough marketing research and make sure that your prospective consumers desire what you’re offering. In a lot of cases, it may simply be a matter of tweaking your product or service, so it aligns with what your target audience wants.

6. Failure to Advertise

It doesn’t matter if you have the very best product on the market if your clients do not know about it. With the increase in internet marketing, small businesses who do not invest in digital means of promoting their products and services may be setting themselves up for failure.

Advertising is not always expensive. There are many low-cost options available to small business owners on a budget. There are also free alternatives available such as social media and email marketing. The key is to research and find out the combination of promotional products and platform that will be best for your business and your target audience.

7. Business Idea Isn’t Profitable

Unprofitable ideas are often the result of a good initial business proposition, but soft financials. If the client acquisition costs are higher than the income that they generate, then the business model is either incomplete or just doesn’t make good sense.

The solution to this problem is planning and research. Before starting a business ensure you understand the cost of customer acquisition and how much you are willing to pay to maintain a profit. If your research reveals a high cost to get the product or service into the hands of the customer, consider ways in which you can cut cost or increase your income.

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8. Not Going Digital

With a growing number of people spending time online, small companies cannot make the mistake of only focusing on the brick and mortar of the business. Many companies are now finding success in the virtual marketplace.

At the most basic level, if a small business wants to be successful, it must maintain a professional website. In the era of social media and digital marketing, a small business owner may find great opportunities to promote his products and services to clients all over the world.

9. Poor Leadership and Management

Poor leadership and management can be the demise of many small businesses. When individuals at the top who are in charge of coordinating everything, aren’t doing their jobs properly, the rest of the firm falls apart too.

A successful business requires leaders and managers that can influence, motivate staff members, and make certain things are working smoothly. It is important to invest in your human resources with training.

10. Changes in the Marketplace

Sometimes small business failure has nothing to do with the day to day operations of the business, but external factors such as the economy or the presence of a brand-new disruptive technology that makes your business outdated.

Not all external factors are out of your control. Preparation, research, and planning can help a small business owner adjust to a changing marketplace.

Small business success is possible despite the daunting statistics. Being armed with information as to the pitfalls many entrepreneurs fall victim to is a good start to making your business successful.

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Featured photo credit: rebrn.com via i.imgur.com

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