5 Major Reasons Why Small Businesses Fail

5 Reasons Why Small Businesses Fail

Running a small business is an exciting venture that can lead to the financial freedom simple employees work their whole lives to attain. However, with the great rewards come great risks that can lead us small business owners to financial failures.

I have witnessed friends and family members pursue their own entrepreneurial dreams only to see them shattered not a year into their short-lived careers, mostly due to a number of fatal but avoidable reasons. Let’s take a look at some of them.

# 1. No Business Plan   

Business Plan

Knowing what your business will be and how you will sell your products or services are not enough to keep it running. You need to have a business plan written out, including (but not limited to) the following:

• your short and long term goals;
• the business’ finances for labor, production equipment, etc.;
• your target markets; and
• marketing.

Having one which outlines every detail will guide your business to the right path.

# 2. Inefficient Management

Inefficient Management

Small business entrepreneurs usually come into their industries with little to no knowledge of handling the multiple facets of a business such as financial management, employee relations, advertising and other essential responsibilities. Educate yourself through short business and finance courses, or hire managers who have expertise in the fields where you are lacking.

# 3. Poor Marketing

Poor Marketing

A small business needs to market its brand considering the tough competition it will face against more established businesses. You need to invest enough resources into promoting your products through the right channels. This is so your target market knows exactly that you can fulfill its needs. Online marketing is a must these days, but you should not ignore the physical reach of traditional marketing methods such as brochures, flyers and business cards.

# 4. Lack of Capital

 Lack of capital

Some entrepreneurs think they will be making profits for their beginning operation cycles, spending most (if not all) of their resources immediately, only to find out later that they will not have enough funds to start the succeeding cycle/s. Consider every possible cost (overhead, production, equipment, etc.) and save enough money that can be used for at least one fiscal year despite poor sales.

# 5. Bad Location

Bad Location

It is not enough to set up a store at a location with high human traffic or with a very cheap lease. Opening a restaurant near a school campus can seem like a good idea, but don’t expect too many customers if the food is expensive and there are much cheaper alternatives around.

You need to consider your target market and their habits, as well as the direct competition in the area. Don’t be afraid of spending on prime location, as the increased rate of customers coming into your store and making a purchase will make up for the initial cost.

Ultimately, it is a matter of planning out your overall strategy, assessing your own strengths and weakness, and keeping a good eye on all of your resources—be it financial or human. Consider each of these possible pitfalls, and you can find your small business not just surviving, but thriving in this competitive world.