Running a small business is no easy task. Many don’t survive the difficulties that come with startups or nor quite adapt to the changes that come with scaling the business.
We’ve come up with 6 common reasons why small businesses fail. If you’re a small business owner or plan to launch a startup, you’ll want to know and avoid these common reasons why businesses fail if you want to secure long-term success.
Disorganized Marketing Initiatives
Without a targeted audience and an understanding of the client conversion process, advert campaigns can prove unsuccessful and expensive.
Ensure a return on your investment (ROI) with a well-researched strategy. Once you know who is most likely to become a buyer, you’ll know exactly who you need to market to.
Tools like Instagram’s Ad Manager show you who’s bought your product before, helping you advertise to similar accounts. This concept can be done on your own by researching keywords and demographics.
Unsustainable Growth
In theory, growing your small business should always be a good thing. However, unless you’re prepared to manage that growth, it could be the reason why your small business fails.
If your business isn’t prepared to fill a huge order or sustainably allocate an influx of capital, it could fail. Instead, scale your business as it grows. Scaling is all about capability and capacity. Your business needs the right infrastructure and management team to accommodate new changes and more responsibilities.
Underestimating Administrative Tasks
In running a business, many daily operational tasks seem easy and doable until they must be done alongside everything else. Bookkeeping, inventory management, employee scheduling, even storefront upkeep can take up a vast amount of your time.
Decide who will accomplish these tasks and how they will do them. Strategize ways to simplify administrative processes and utilize technology you have access to wherever possible.
For example, many iPad point-of-sale systems connect and integrate with QuickBooks software-this saves you the time of manually inputting sales data.
Look out for opportunities to streamline your administrative processes. Invest time training your admin team and use your free time for more critical tasks.
Lack of Capital
Frequently, small businesses fail because they run out of money before they can generate income. Businesses aren’t expected to turn a profit at first, but without enough startup capital or ongoing cash flow to sustain the startup process, a small business venture can drain capital with little to no return.
Have realistic expectations of your incoming sales revenue. Account for operating expenses, wholesale or manufacturing fees and have a solid understanding of your cash flow.
If you need to, take out a small business loan to cover your startup cost. You can work loan repayment into your budget as you build your business.
Retaining an Inadequate Management Team
Longevity doesn’t always equal efficiency. A small business may need new leadership as it grows and changes. Long-term management may feel unmotivated or unprepared as the business changes.
Choose leadership that is adaptable. As you prepare your business to grow, invest in your current management with training ahead of time.
Forgetting Insurance
Even with an excellent business plan, well-researched marketing initiatives, and a well-managed cash flow, legal issues could be a reason your small business fails. Litigation regarding intellectual property, wage disputes, accidents, and injuries could escalate into an expensive and lengthy legal process.
Getting the right liability insurance is the first step in protecting your business. This protects against third-party injuries and accidents. Continue to build a comprehensive insurance portfolio throughout your career.
If you have employees, you’ll need to insure them with worker’s compensation. This pays for employees’ medical or rehabilitation costs if they’re injured on the job without insurance, those fees are the employer’s responsibility.
If you offer any consultation services or advice to your clients, you’ll need professional liability insurance. This covers legal defense fees and settlement costs if a client were to lose money and claim it was due to your advice.
Thinking about launching a startup or currently running a small business? You may want to consider these common pitfalls and preemptively create solutions that protect your business from failure.
