Why do small businesses fail? Business failure isn’t something you want to think about when you start a business. But if you want your business to succeed, you need to know and avoid some certain things.
According to statistics by the Small Business Administration (SBA), about twenty percent of business startups fail in the first year. About half succumb to business failure within five years. By year 10, only about 33% survive.
Those statistics are rather grim. And this year (2021), small business survival is an even bigger worry because of coronavirus-related declines in sales.
While there are a multitude of conditions that can result in a business failing, most years, the reasons small businesses go out of business is because they make one or two common mistakes.
Here are the top reasons why small businesses fail and what you can do to avoid them.
1. You start your business for the wrong reasons
The reason for business failure is often tied to the reason the owner started the business. Is your primary reason for starting your own business the desire to make a lot of money? Do you think that if you have your own business that you’d have more time with your family? Or maybe that you wouldn’t have to answer to anyone else? While those are benefits some successful entrepreneurs achieve after years of hard work, they are not reasons to start a business. The right reasons for starting a business to building a successful company include these:
- You have a passion and love for what you’ll be doing and strongly believe based on educated study and investigation that your product or service would fulfill a real need in the marketplace.
- You have drive, determination, patience, and a positive attitude. When others throw in the towel, you are more determined than ever.
Studies of successful business owners have shown they attributed much of their success to “building on earlier failures;” on using failures as a “learning process.”
You thrive on independence and are skilled at taking charge when a creative or intelligent solution is needed. This is especially important when under strict time constraints.
You like if not love your fellow man, and show this in your honesty, integrity, and interactions with others. You get along with and can deal with all different types of individuals.
2. There’s No Market or Too Small of a Market
The best business ideas will fail if there isn’t a market for what you sell, or if the market suddenly disappears because of economic changes or natural disasters. While you can’t predict disasters, before you start a business you need to determine if there’s a market for what you plan to sell and if that market is big enough to be profitable. Keep in mind, that “everyone” isn’t a market. The market must be an identifiable group of customers you will be able to reach with the marketing naira and resources you will have available.
To avoid business failure after startupbusiness owners need to keep tabs on their market and customers’ changing needs on an ongoing base, as well.
3. Insufficient Capital
A common business mistake for failed businesses is having insufficient operating funds. Small business owners often don’t understand cash flow or underestimate how much money they will need to get the business started. As a result, they are forced to close before they have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales.
It is imperative to ascertain how much money your business will require. You need to know not only the costs of starting your business but the costs of staying in business. It is important to realize that many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. This business startup calculator will help you predict how much money you’ll need to launch your business.
4. The Wrong Location
Your location is critical to the success of most local businesses. If your business requires walk-in traffic or a professional location to meet with clients, a good business location in the right community is essential. A bad location could spell disaster to even the best-managed enterprise.
Some factors to consider:
- Where your customers are
- Traffic, accessibility, parking, and lighting
- Warehousing or equipment storage needs
- Location of competitors
- Condition and safety of the building
- Local incentive programs for business start-ups in specific targeted areas
- The history, community flavor, and receptiveness to a new business at a prospective site
If you usually don’t have customers or clients entering your business establishment, the ideal location for your startup could be your own home.
5. No Website and No Social Media Presence
If you have a business today, you need a website and a social media presence. Period.
In the U.S. alone, there were 312 million internet users in 2019 and the US Census Bureau estimates e-commerce sales were $601.7 billion.
At the very least, every business should have a professional-looking and well-designed website that enables users to easily find out about their business and how to avail themselves of their products and services. If you serve local customers, your website should include your address, phone number, and hours of operation, and should be listed in Google My Business so it will show up when shoppers search for what you sell by location.
You need to have social media profiles on the services your clientele are most likely to use for the same reason. If you don’t, you won’t look professional and will lose business to competitors who do at least have profiles on popular social media sites.
If you have products that can be sold online, or you can take orders online, that’s an added benefit. But at the bare minimum, you need a website that lets customers know what you offer and how they benefit by doing business with you.
When it comes to the success of any new business, you, the business owner are ultimately the “secret” to your success. For many successful business owners, failure was never an option. Armed with drive, determination, and a positive mindset, these individuals view any setback as only an opportunity to learn and grow. Most self-made millionaires possess average intelligence. What sets them apart is their openness to new knowledge and their willingness to learn whatever it takes to succeed.
I’d love to know other challenges your business faced at the early stages.—please post them in the comments! Let’s interact!