Do you plan to put up a small business? Or perhaps you’re already managing one.
It’s daunting when you consider how many businesses launch but only a few ever survive to the second or third year. Why are there so many failing companies in the country?
It is a question that has many answers. Statistics say that 80% of small businesses with employees will make it through the first year. But come year number five, only half will remain standing.
Furthermore, only 30% will be in business after a decade. With this alarming failure rate, you must be aware of the pitfalls of running a small business.
Continue reading below as we discuss some of the leading reasons why businesses fail.
Small Business Outlook in the United States
For a better appreciation of the topic, let us first take a glimpse at the landscape of small businesses in the United States. We mentioned earlier that only half of the businesses make it to year five. Despite this, small businesses remain one of the nation’s key economic drivers.
A report revealed that there are over 30 million small businesses in the country. They also employ close to 60 million people. That is nearly half of the country’s total private workforce.
As for the small business trends for 2020, business services and retail will be the most popular industries. Contracting and construction will also make waves this year. The same thing goes for the restaurant and residential industries.
Furthermore, the survey noted the happiness and confidence levels of small business owners remain high. However, excitement is not enough to take your business far.
Top Reasons that Lead to Failing Companies
Some of the reasons why businesses fail happen during the first few months. Others may manifest after a couple of years. Nevertheless, overcoming these reasons begins with identifying them.
Here are nine of them that you need to keep an eye out for:
1. Poor Management
Poor or inadequate management is one of the best recipes for disaster. This happens when the management team simply does not have the business acumen. Sometimes, the problem stems from the owner.
You may have the skills to sell a product. However, you may lack the prowess to manage the business and your employees. This will only lead to a breakdown in leadership.
Thus, you need to build a strong management team. Hire a team of professionals who know how to handle business operations.
2. Problematic Business Plan
You also need to create and implement a solid business plan. When creating one, put a clear description of what your business is all about. You must also include the current and future needs of your employees.
Moreover, indicate the opportunities and threats in the context of your target market. Determine the capitalization, your different budgets, as well as your cash flow.
Don’t forget to include your competitor analysis and marketing initiatives. Additionally, you must have a solid grasp of your industry and the competition. Relying on your enthusiasm is not enough to take you far in the game.
3. Insufficient Capital
You can also expect your business to fail if you do not have enough capital. It is not enough that you know how much your operational expenses are. Even if you know how much your payroll and monthly utilities are, the more important thing is knowing how much revenue your sales can generate.
To avoid this pitfall, you must establish a realistic operational budget. And if you have business partners, everyone must be willing to chip in to boost your capital.
4. Poor Management of Expenses
In line with having enough capital, you must also manage your expenses accordingly. Business financial management means controlling your cash flow.
This is an area where your personal money habits come into play. Are you the frugal type? Are you aware of your personal credit score?
Do you make it a point to settle your debts as early as possible?
These are areas that may translate into the way you manage your business’ expenses.
5. Failure to Connect with Customers
Failing to establish a real connection with your customers will also spell doom. The key is to understand your market. Find out what their buying habits are.
How much are they willing to spend on a particular product or service?
You need to know what they want and need. From there, you will know how you can help them with your products. Conduct surveys to get a feel of the market.
Your goal is to address your customers’ pain points.
6. Little to No Unique Value
If you wish to survive in a cutthroat industry, you need to have a unique value proposition. Don’t settle for having a great product. You need to differentiate your brand from the competition.
Come up with something that will make you stand out from the rest. Offer a little bit more than what the competition is capable of.
7. Bad Location
If your business requires heavy foot traffic, then having the right location is a must. The poor location will only lead you to more expenses. You will need to spend more just to attract the right people to your business.
8. Lack of Accountability
Businesses also fail if their leaders do not practice accountability. As the owner, you must get serious with your business from Day 1. Set your goals and hold yourself accountable for reaching them.
Challenge yourself by spending more hours in the office. Expand your knowledge of the latest technologies that may benefit your business.
Treat yourself as if you were one of the employees.
9. Forgetting About Your Employees
Failing companies often forget about their employees. This means failing to listen to their concerns.
Hence, you must create a culture where employees’ welfare is paramount. This way, your best people will have no reason to look at what the other side has to offer.
Improve Your Business in All Aspects
Now that you know the reasons behind many failing companies in the country, you can start implementing some best practices in your office. Moreover, you must continuously look for ways to improve your business in all aspects.
We invite you to check our articles on business and entrepreneurship. We provide tips and tricks that will help you stay ahead of the competition.