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The Top 10 Reasons Small Businesses Fail (and How to Overcome Them)



Are you starting a new business or struggling to get one off the ground? Unfortunately, approximately 20% of all new businesses are unsuccessful in the first two years! But that doesn’t have to be your reality, so don’t give up hope just yet.


While some factors will always be beyond your control, such as economic downturns, there are several strategies you can employ to make sure your small business not only survives but thrives!


In this article, I’m going to delve into how you can not only prevent but overcome the 10 biggest reasons small businesses fail.


#1. Ineffective

Business Planning


When you overlook the importance of effective business planning, it’s tough to achieve your goals.

Without a clear understanding of your business goals and objectives, it's challenging to make informed decisions and develop effective strategies for growth.


Solution: Build a realistic plan based on present and future sales projections.

Your plan doesn’t have to be complicated, but make sure it includes the following:


● Business vision, mission, and goals

● Market research and competitive analysis

● Employment needs

● Potential problems and solutions

● Capital needs for all business operations.


#2. Poor

Financial Management


Poor financial management can kill your cash flow and make it challenging to pay bills when they are due. Late payments can then result in late fees, penalties, and damaged relationships with suppliers and vendors.

If you have trouble keeping a close eye on your business finances, you can easily pay too much on rent, utilities, and office supplies. Without a proper budget, you may even end up spending more than you can afford, which can lead to financial difficulties down the line.

Solution: Start by creating a budget for your business and sticking to it. Keep accurate financial records to track income, expenses, and profits. This will help you make informed financial decisions and identify areas for improvement.


#3. Running Out of Money


Poor financial management can also inevitably lead to running out of money, which happens to be the top reason why most small businesses have to shut down. Business startup may require personal funds, which is often pulled from personal savings.


77% of small businesses worldwide rely on their personal savings to initially fund their business. But when you need a cash infusion to test the market, there's only so much your savings can supply.


Small businesses often face cash flow issues after exhausting their savings. It becomes such a massive problem that could lead to the closing of business, and even to the point of bankruptcy.


Solution: Within your business plan, develop a cash flow forecast that predicts the business’ inflows and outflows for the coming months. Keep an eye on account receivables to ensure your customers pay on time. If you sell physical products, maintain optimal inventory levels.


#4. Inventory Mismanagement


Inventory mismanagement is a rookie mistake any small business can easily make. You must learn to find the right balance between supply and desire.

Inefficient inventory management often leads to a significant shortfall in cash flow. You will either end up with too many products or not enough, leaving you unable to meet customer demands. Holding excess inventory can also result in increased storage costs.


Solution: Conduct monthly audits and find the balance between supply and demand to avoid excess inventory, obsolete products, or stockouts. If you sell products, explore inventory management software that can help you automate and optimize the whole process.


#5. Failing to Pivot


To be successful, all businesses need to be able to adapt to market conditions.

For example, Starbucks originally sold coffee makers, Instagram started as Burbn (a check-in app), and Netflix launched by mailing DVDs before the streaming market made those almost obsolete.Every brand pivots for one reason: to adapt and survive the changing market conditions.


Solution: If deemed applicable, be prepared to let go of your original business idea if your business is struggling, or the market is changing. Assess your business; identify what needs to be addressed; make modifications accordingly and adapt to your new norm. Don’t be afraid to pivot to a new product or service your customers want or even a new business model! Remember what happened to many offline businesses during the Covid-19 pandemic? Many had to move online or add take-out and delivery options. Remain agile and adaptable!


#6. No Online Presence


About 2.56 billion people worldwide shop online, and the number keeps increasing. The digital age has forced many businesses to switch from an offline to an online business model.


Online marketing can be more cost-effective than traditional methods. You can use social media, email marketing, and online advertising to reach your target audience without dramatically increasing your budget. Be intentional in the direction of your efforts!


Solution: Create a simple website that educates your target audience about your product and creates an online ordering funnel. If you don’t have the time and resources to create a website, simply sign up for a marketplace like Amazon or Etsy and start selling. It won’t just happen. Be diligent in your efforts!


#7. Trying to Do It All


Initially, you may have to wear many hats in your day-to-day business operations. But to grow, you must learn to delegate.


Don't try to be a jack of all trades. You can't be an expert at everything, and you have a finite number of hours each day.


Solution: Delegation is the best technique to expand and protect your business from failure. But remember, hiring isn't the only solution. You can even invest in software that helps automate processes and save time.


#8. Unable to Cope with Customer Expectations


When your business can't meet customer expectations, it can lead to losing their loyalty and trust. People will switch to a competitor if they think you can't meet their needs.

Dissatisfied customers might also leave a negative review or worse. They may share their negative experience with their friends and family, leading to poor word-of-mouth marketing and a stained mark on your reputation.


Solution: Understand customers' needs by talking to them and molding your business model accordingly. Providing excellent customer service is vital to meeting their expectations. Follow up and follow through is critical to customer satisfaction. Improving customer service can include prompt responses to inquiries, addressing complaints in a timely and professional manner, and going above and beyond to exceed expectations.


#9. Not Hiring the Right People


Most small businesses fail to hire the right talent due to limited resources, a small network, or a lack of hiring skills. This can lead to:


● Decreased work productivity

● Low employee morale

● Lower employee retention


Solution: If you're not a hiring expert, bring an HR manager on board. Focus on finding candidates who are eager to learn and are a right fit for the job and company culture.


Pro tip: Check out sfigrowthstrategist.com for a free consultation to successfully hire the best fit candidate for your business needs.


#10. Fear of Business Failure


Are you afraid to try new tactics or jump on promising opportunities? If you're worried, you’ll fail, you’ll become overly cautious and avoid taking risks that might help your business grow. All this leads to a lack of innovation and creativity since you will be wary of trying non-traditional strategies and exploring new markets. Of course, you MUST ensure to perform due diligence to mitigate risk potential. Creativity doesn't mean you through caution to the wind. There is a difference between creativity and lack of preparation!


Solution: Learn how to embrace failure as a learning opportunity. Look back at your mistakes and identify ways to improve. Maintain a positive mindset and focus on your strengths and accomplishments.


There’s no reason you can’t grow a successful business and avoid the hurdles that have knocked down others. Sure, success isn’t guaranteed. But when you persevere and follow the solutions and tips in this article, you’ll be able to tackle any challenge that comes your way. The result? A sustainable business that you can build and scale for years to come.


Want to learn more about growing and managing a new business? Head here for a FREE consultation: sfigrowthstrategist.com.




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