Why Do So Many Small Businesses Fail?

In a time when more new businesses are opening up than ever, why are so many of them being forced to close their doors, and so quickly? The reasons for the failure of small businesses are as varied as the types of businesses in operation. Even so, we will answer a few of the questions surrounding this phenomenon here.

Execution

Ideas are like mothers; everybody’s got one, no matter who you are. What separates a business idea from a viable business is the ability to execute that idea.

You may have come up with the best thing since sliced bread, but if you don’t have the ability to build the proverbial machine that will produce, sell, and deliver that product or service in the real world, then all you have is a great idea.

Money

Startup capital and working capital are tricky. When you start your business, the amount of money you have is never as much as it seems, and you’ll probably be chasing that break-even line for quite a while.

Understandably, many small businesses are starting out on a wing and a prayer, but the best favor you can do for yourself in the beginning, if possible, is to make sure you have roughly three times as much startup capital as you project that you will need.

At the same time, you will be better off in the long-run, as well, if you use your own money for as long as possible to avoid giving outside investors control over the direction of your business.

Research, Or the Lack Thereof

Planning is a massive part of starting a business that will be successful. When huge, established corporations open a new location, for example, they don’t just put in a new store because it seems like a nice spot, of course; those corporations have studied extensively a variety of factors to determine viability, including the local interest in their type of product, the mean salary of customers in the region, prior reports of sales volume in the area from other businesses, and so on.

You should also do the same for your small business and be absolutely sure that your customers are already there before you open.

Poor Judgment

After you hit the ground running and your business is pulling in sales, thriving, and showing lots of promise, it’s really important to keep your product consistent with quality while continually innovating at the same time.

In the first few months or first couple of years, you may have to pivot, replace employees, update the product or service based on customer feedback, or make other adjustments as you see the need for it. You might have to be really careful, and it’s good to have a partner or trusted mentor or colleague who can help you steer the business in the right direction.