Thursday, 22 September 2022

The Top 10 Reasons Small Businesses Fail – And How To Avoid Them

Reasons Why Small Business Fail

Harsh economic has always cited by many entrepreneurs to be the common reason their business failed. Most of them complain of poor access to funds, high taxations and high operational costs. These are common factors that affect success of such businesses. Some of them indicate that poor business plans as well as management play a huge role in the business failure. Below we are going to look at some of the common reasons many small scale-business do not survive beyond their first five years.

Poor business plan

A business plan goes beyond just stating what the business is about, its target market and growth objectives. Business plan is meant to help the owner stay focus and provide information about operational costs among other things. It is also a step by step guide to help entrepreneur achieve his or her goals but many small business owners take it for granted and fail to make it as detailed and professional as possible. Once the business plan which can be linked to the foundation of the business is poor then the possibility of the business collapsing is much higher no matter how good the business plan is, it needs to be reviewed at frequently as possible, be it monthly or yearly.

Cash flow problems

Another major reason why small businesses fail is as a result of inadequate funds. Many entrepreneurs fail to realise how much cash flow they need to start a business and run it successfully, while some of those who know what is required go ahead to establish the business with the believe that they would get access to more funds eventually and stablise the business. This often leave them difficulties in running the business and eventually force them to go into debt in order to keep the business running.

Obsessing about growth

Many small business owners are obsessed about growing their business. They want to start as big as possible and grow as quickly as possible. Entrepreneur who are obsess about it make the mistake of starting the business on a scale that is bigger than they can afford or even manage. Instead of the entrepreneur to build cash reserves and taking time to carefully plan their expansion they rush into it, using up all the funds at their disposal to expand the business. When the business hits the rough patch they find themselves incapable of surviving it. It is not wise to use up the entire capital before the business starts generating revenue.

Poor financial control

This is one of the major reason for small business failure, many small business owners do not know to manage their costs or utilise the funds in their hands. Because of inexperience, some of them often end up with bad business models as they do not hire accountant to oversee the financial decision of the business due size of the business. They focus on saving and minimising costs, they spend more believing that the more they spend, the better their business will be. According to experts, the right thing to do is to ensure that there is adequate funds available before starting the business; get enough funds to keep the business running at least for six month or a year.

Inexperience entrepreneurs

Another major reason why small business fails is that the business owners do not have adequate experience about the business they are venture into. Some of them lack an understanding of how their business meant to operate. They are incapable of putting needed processes and checks in place and this can lead to business failure. Many of these entrepreneurs do not know how to engage and motivate their employees. They also sited their business in unsuitable location. In addition to this, some of them do not employ the appropriate people for the business.

Poor records keeping

For an entrepreneur to protect his business and properly manage his finance, not only it is important to properly document and store the company financial records, it is important to review them regularly. Some businesses failed because they have defaulted in their tax payments, it is important to pay your taxes and meet other regulatory requirements.

Stiff competition among small business

The nature of competition that a business face can determine whether it will succeed or fails. Strong competition coupled with some of the above reasons. Customers may decide to patronise another firm. Over time, as the business grow many of the small business in their quest to get new or more customers start neglecting the older ones. They fail to realise that older customers are virtually more important than the new ones. It is okay to look for new customers.

Failure to adapt to new change

It is important to recognise change as your business start growing; it is quite common to see small business that once enjoyed high patronage is now struggling to get new customers. This mostly happens when the business owners fail to adapt to new trends or change. Learn to follow the market trends to see what you are missing what you can do to adjust to make your business more profitable. Remember the more customers the more more/profit you make.

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