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6 reasons why new small businesses fail

There have been a lot of words written over the years explaining why businesses fail. A little research though shows it mostly boils down to 6 common factors and themes.

  1. Starting your business for the wrong reasons. Many people start businesses as a result of a change in their working lives. For instance, they may be made redundant and can’t find alternative employment so decide that they may as well work for themselves to earn some money. Others believe that working for themselves will give them more time for their hobbies or their family, if this is the case then you need to finely balance what you need to earn with the time you have available to you. Starting a business isn’t easy, and most small business owners would say that they now work harder and longer.
  2. Poor Cash Flow or Capitalisation. You need money to make money, in other words, if you don’t have enough coming in to pay your suppliers then you will soon be in trouble. You need to be certain that you have enough in the bank to tide you over for the first few months until the invoices start being paid. Your business may not reach break-even for a couple of years.
  3. Poor location. This applies equally online and offline. For retail outlets, you need to be certain that you will be able to see the footfall. There is a reason why many big stores are situated in shopping malls, it’s because the volume of passing ‘traffic’ is so great. Just because premises are cheap doesn’t mean they are appropriate and if you rely on passing trade to be noticed then your business may be doomed before it’s even begun.
  4. Lack of management skills and understanding. It is tempting when you are starting out to try to save money by doing it all yourself, but in reality, no one knows everything they need to do to make a business successful. The variety of skills necessary includes financial understanding, marketing, purchasing, advertising, networking, communication, sales, production and HR and employment. Every business owner will have experience in one or more of these areas, but the real skill is in knowing when to call in extra support and help.
  5. Poor planning skills. In order to succeed you need to have a plan for where you are going; this includes planning for financial success as well as business success. Without a business plan, an entrepreneur has no idea of where they are headed or how long it will take to get there.
  6. Under or over-expansion. These are two faces of the same problem, if you don’t expand at the rate your market is demanding then you will be missing sales and losing market share; yet if you expand too quickly you will be wasting money and resources you have yet to earn with no guarantee that they will be replaced.

Of course, these are the negatives and they are gross oversimplifications as well. There is nothing black and white in business, just various shades of grey.

What’s your experience of working with either your own business or someone else’s? Did any of these apply or was it something completely different?

(Image by LEEROY Agency from Pixabay)

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  1. Quite often I find that there is lack of communication to resolve issues from customer and small business. Frustraction when business is taken else where. This can be hairdressing, Technical issues with software, lack of info and staff in shops to offer support.