For every small business that succeeds, there are plenty more that fail. The Small Business Administration reports that only one in three small businesses last 10 years or more, a worrying statistic for investors. But how do you ensure that your small business thrives and becomes a well-known name instead of just another statistic? We’ll take you through some of the most common causes of failure before giving some practical advice on what you can do to avoid them.
Why Do Many Small Businesses Fail?
- Lack of knowledge and/or passion
Before you even begin planning out your own business, you’ll need to make sure you’re doing it for the right reasons. Not only do you need the skills to provide customers with a great service, but you also have to have strong leadership skills and the acumen necessary to get your business off the ground. Many people rush into business without taking the time to learn about the ins and outs of it and therefore make numerous common mistakes that end up costing them their business.
Also, remember that there will be tough times along the way. If you’re not passionate enough to put up with these, then it might be time to go back to the drawing board.
- Bad value proposition or location
Once you’re ready to manage your business, you need to be clear on what it is you’ll be offering people, and whether or not it’s worth their time and money. Consumers have so many choices, so if your business isn’t unique enough to grab their attention, they’ll likely end up going to someone else.
There are two things you need to consider: value proposition and location. If you’re offering customers poor value for money, then they just won’t come to you. The same goes for a bad location: Out-of-the-way properties might be cheaper, but will they give you the passing trade you need? Probably not.
One of the main reasons why so many small businesses fail within their first year is overspending. There are so many expenses to take care of while you set up, and it can be easy to lose track of how much money these are costing you.
A budget can help, but life doesn’t always operate to a schedule. It’s vital that before you jump into things, you seek some expert advice. A consultant will be able to give you some useful tips on how to keep your spending to a controllable level and steer you in the right direction.
- Lack of a business plan
A lack of planning can also put your small business’s existence into jeopardy. Before you begin operations, you need to know exactly how your business is going to work, down to the smallest detail. Your business plan should be as comprehensive as possible and include research on your target market and competitors as well as budgeting and sales forecasts. A business plan also forces you to focus on many things that less experienced business owners often forget about, meaning it’s an effective way of gaining some practical experience and looking at examples of how successful businesses operate on a daily basis.
Build a Loyal Customer Base
One way of ensuring your small business can last for the long haul is to build up a loyal customer base. This is particularly important because there will inevitably be some months where you make more sales and others where the cash registers aren’t ringing quite so much. If you have a loyal set of customers who keep coming back to you, then you’ve secured a guaranteed minimum income each month that will allow you to keep going through those tougher times.
This customer base is vital throughout your business’s lifespan, from those early days when you are just getting started to when you’ve become more established. Make sure you always provide a stellar service so you give your clients a good reason to come back time and again.
Come Up With a Strong Business Plan but Don’t Be Afraid to Evolve
The survival rates for small businesses take a dramatic drop over time, with only a few reaching the 10-year mark. What these failed businesses don’t take into account are changes in the marketplace. What worked when you first started out might not be the best option a few years down the line. On the other hand, those that are able to move with the times and recognize new opportunities are the businesses that really thrive.
You need to be prepared for everything that comes with running a business. Not only do you need to work on the management and customer service skills needed to work effectively with employees and customers alike, you also need to think about all manner of variables, from budgeting to your business location, with an eye on moving forward.
Before you even begin planning out your business, do your research and be prepared for the realities of running it. There are plenty of people out there who can start a business, but it takes the right candidate to make it a success. Do your research, speak to others with experience, and come up with an in-depth business plan.
Get Help for Managing Your Finances
Correctly managing your business finances is essential. You can use business accounting software to keep track of your profits and losses, but if you aren’t very good with numbers, hire a tax adviser or an accountant who can help you out with this boring side of running a business.
Use Factoring to Deal With Business Debt
No matter how much you plan, there will be times where things go wrong and you might find yourself in a tough financial situation. Don’t despair — you can temporarily finance your business with a financial method known as factoring. With this technique, you get an advance against your invoices by a third party, which means you can use the cash from these invoices right away. You obviously will pay a small fee for the time the advance is outstanding, but it’s a good way to deal with those financial emergencies.
Managing a business, no matter how small, is tough. As you saw, there are many reasons why small businesses can fail, from poor planning to lack of knowledge and overspending. Make sure you build a strong basis for your business and stick to your business plan.