Five Common Reasons Small Businesses Fail

Small business owners have a lot of ideas to begin with. However, there are several misconceptions that prevent their business from growing. Every business requires proper planning and follow up to survive in a competitive market. Whether it’s a small business or a multi-million dollar project, the fundamentals for success remain the same – project planning, business objectives, market analysis, execution of plans, and evaluation of outcomes in terms of finance and goodwill.

Here are five common reasons small businesses fail.

1) Improper analysis of the market for their product: Small business owners start a business with products they like. However, when you plan to start a business with a product in mind, it’s first important to survey markets and prospective buyers for the same. Without a customer base, it’s difficult to run a business. To identify genuine markets for your business you need to devise a business plan and research before plunging into it. Is the product a local demand? Who are your competitors? Where would be a good location for your business? What should you do to keep your clients interested in your product? When you answer these questions, you’ll have a vision of your needs and competition in the market and therefore your chances of survival and success are increased.

2) Lack of budget planning: A lot of money is put into a business of any size, and, as with any investment, this comes with a risk. It is therefore important to budget business expenses. Small business owners need to realize that they need money to meet their personal or family expenses and manage finance for their business. Without sorting out a budget, it won’t be possible to measure the financial situation on both fronts. the assumptions of constant income flowing in each month is misleading and may stall the business in its early stages. It may also take away from your personal savings. With smart financial planning and corporate expense management, you can invest according to your performance and therefore rule out any unnecessary loss. Every idea that a business owner has must be implemented with careful planning about budget and execution.

3) Lack of business plan: Any business, big or small, that does not have a plan is bound to fail. When you work out a business plan, you are in a position to get things going. A business plan includes market research, availability of finance, prospective customers, business strategies, and possible outcomes. With this you are able to eliminate impractical ideas or strategies and reduce unnecessary expenses. It’s important to select a system that suits your business. Most small business owners fail to consider the importance of planning before investing. A business owner must understand how he is going to make money. Also, with a documented business plan, it is easier for small business owners to avail loans from banks or financiers. This solves the problem of managing income to pay your personal bills and to plan your budget for your business.

4) Inability to handle outcomes: Small businesses may sometimes witness unprecedented success. This may create an imbalance in their business prospects and their capacity to produce or manufacture goods. For example, a product may gain popularity in the market. But the owner may have insufficient manpower or machinery to meet growing demands. This can only be solved by working in partnership or developing a team of skilled professionals to allocate tasks, supervise jobs, and suggest a further plan of action. Most small business owners prefer to do everything themselves and thus stagnate their own growth. Every business requires a vision to remain alive. A business owner must not be lacking in foresight but must be ready for positive as well as negative outcomes of his or her business. It’s a sad situation when business potential fails because of improper planning.

5) Untimely closing or sale of business: Small business owners sometimes sell off their business when it’s at a loss or because their of age and cannot work as hard. It’s not always easy to sell a small business because most of the time, it’s a single person or a small family that runs the business. Few people would be interested in buying a business that is dependent on the skills and experience of one person alone. Some small business owners choose to sell their business even if it is currently successful because they cannot meet growing demands for various reasons such as insufficient staff or space or because of they may be too old to work as hard. It is a good idea to research and select the best way to exit from the business so that you get returns for your years of hard work and goodwill.

Entrepreneurship is all about people who have ideas, make plans to execute these ideas, and work strategically to earn profits to keep their business growing. Whether it’s a small business or a huge project, focusing on strategies to meet objectives will always remain the key to success.


Shelly Verma is an avid small business writer touching on topics from insurance, health, higher education, career improvement, self-help to home improvement.

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