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10 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.

small businesses fail

1. No 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. Wrong Reasons

Starting a small business simply because you want to be rich can lead to an unfulfilling experience, where you will always be looking for schemes that can bring you fortune. Before you do, think first about your own interests and passions. Do you believe you can give something of value to people at large? Are you driven enough to overcome the many inevitable obstacles an entrepreneur will face?

3. 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.

4. 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

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.

6. No Online Presence

In this age of high-speed information, people expect to find just about everything on the Internet with their computers and mobile devices. Not having a website or at least a social media page will render your business virtually invisible to a great majority of the world’s population.

You can hire professionals to create a website for you or put up the website yourself. Make accounts for your business on Facebook, Twitter and other leading social media platforms where your target market can usually be found.

7. Uncontrolled Growth

Growth is a good thing unless it is left unchecked and your generated revenue can’t keep up with the expansion. If your business experiences great success, do not be overeager to spend your profits by immediately buying more equipment or opening up new stores. Stick to the strategies you have set so you can still grow without bankrupting the business.

8. Financial Neglect

Cash is the lifeblood of any business, and there will be no business once that runs out. Therefore, it is imperative that small business entrepreneurs practice strict financial record-keeping so that every penny is duly accounted for. Knowing exactly how much money is going in and out of your business will correctly guide every decision you make.

9. Lackluster Execution

Having a great business plan will amount to nothing if each objective is tackled with incompetence. Employees who are lazy, dull, bad-mannered and unmanageable will not just cut down on productivity, but will also have a negative effect on the work environment and customer/client relations. Follow strict hiring guidelines and subject your hires to rigorous training to ensure quality output from each one.

10. 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.

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.

Images:  ”Locked door on a business that has gone bankrupt


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Jared Mumford is the Co-Founder and CEO of SEO Visions, an Online Marketing Company that provides Search Engine Optimization Services in Vancouver.

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  • Hi Jared, welcome to TYB and great first post. I’d add lack of innovation and no marketing to this list.

  • Business should be done is proper business planning,after some research,choose a place which is better for your business,proper marketing both online and offline.

  • Nice article and good advice.

    I’d suggest adding draconian regulations that prevent small businesses from erecting street signs that let customers know they exist.

    When I moved into my store I trusted (but failed to get in writing) a “promise” to erect signage for our strip mall. Another business that opened after I did was told the same thing. Never happened and finally we were told it was just too expensive unless we were willing to pay for the sign. 40,000 plus cars a day pass by and don’t know we exist. It has been two years, the other store is out of business and I am reluctantly closing my doors in a few days when my lease expires.

    We are not allowed to erect our own street signs. City says landlords have to erect expensive multi-tenant monument signs for their malls. Landlords refuse stating cost. And, many of the signs that are erected have areas allotted to each store that is too small to be effective (one or two words in black lettering on a white background.)

    I’ve tried expensive advertising (professionally prepared); TV, radio, newspaper; belong to two chambers of commerce, am A+ rated by BBB, use email, a website and Facebook. I have flyers, brochures, etc.

    Street signage is cost effective and one of the few ways a small business can compete against corporations with virtually unlimited budgets and huge signs. You can make a lot of mistakes and still stay in business if you enough impulse purchases caused by shoppers seeing your sign.

    I represent a major toy company with a big following. I had the best selection in the area. I have permission to display their logo on street signage.40,000 cars a day seeing that logo, with a few of them stopping, would have made the difference and I would still be in business.

    Customers tell me stories about themselves and their friends whose businesses have also failed because they were not allowed to put up a sign that could be seen by cars passing by.

    This was my own fault. If you are promised something by a landlord or a landlord’s agent, GET IT IN WRITING, no matter how nice you are being treated before signing your contract..

  • Abid Ali

    a business can be successfull if it is conduct after analyzing market and having strong financial, human and physical resources.

  • It is hard to understand why a business today will not have a presence online. Is there really anything that can not be built online? Don’t shoot your business in the foot. Thanks Jared for sharing

  • Kelly

    There are always things to discover that we haven’t figured out yet. I don’t understand why you would discourage someone from opening up a small business unless there idea was ludicrous. Everyone is tired o the corporate business that are so big that they can afford not to care about their customers. Competition has always been here, you are just a lazy person who works for some corporate business that doesn’t want to work for themselves because it is simply not simple enough.

  • Stevensen Liu

    Being on sea, sail; being on land, settle.

    WordPress blog themes

  • #7 Uncontrolled Growth <— surprising as it seems, growing too fast without the ability to properly handle things can kill ya too 😉 Thanks Jared 🙂

  • Georgia Dimoulaki

    Great article! Covered a lot of perspectives. Most owners believe that “knowledge is power” however they should understand that only “applied knowledge” is only the power that works! -great point. Came across a blog on which really compliments and adds to this article. Take a look

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