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Why do small businesses fail?

Last Updated: 03-Sep-2013

Starting a business of your own has a lot of benefits such as being your own boss, facing new challenges, a high growth potential and reaping all the rewards of your hard work, however, success in a small business can never be taken for granted. Entrepreneurs who want to run their own small businesses cannot afford to ignore the difficulty of starting a business. The following are the primary reasons for small business failure

Reasons for small business failure – Tips to overcome

Small businesses fail because most people who start a small business commit one or more of the following mistakes-

Lack of planning: Not having a proper business plan is a major pitfall that can lead to failure of a small business. A SWOT analysis is necessary to be able to overcome difficulties during its growth. A business plan gives a proper direction to the business.
Trying to make a hobby into a business: Not every hobby can be transformed into a business. Before planning to start a small business, the idea must be thoroughly researched for its feasibility.
Inexperience in managing a small business: To run a small business successfully it is necessary to be familiar with several aspects of the industry, its trends and possess the skills necessary to market one’s products and services. Inexperience in these aspects can result in failure of the business.
Poor record keeping and financial controls: Not maintaining good accounts of profits and expenses, taxes, etc. is also a cause for small business failure.
Entrepreneurial enthusiasm: Entrepreneurs must learn to differentiate between "true opportunities" and just new ideas that are not practical. It is necessary to compare the idea with the business plan objective, and see if it the skill and time is really available to put the idea into practice.
Inefficient money management: It takes about a year or two for small businesses to make profits, so not having proper resources can hamper the growth of the business. Also, personal use of business funds must be avoided.
Too much dependence on a single product/service/client: Small business owners must be careful against offering just a single major product/service or having just one big client. Though this might be the major source of profits they must think of what might happen when they no longer have the source and, therefore, try to broaden their horizons and spread their risks.
Incorrect competitor analysis: Competition is a major factor influencing the success or failure of a small business. Therefore, it is necessary to identify the exact nature of competitors, their products/services and how your products/services are superior.
Poor marketing: The success or failure of a product can depend on good marketing. Therefore it is important to research every marketing method used and stick to those that are yielding results.
Entrepreneurial exhaustion: Having a small business requires patience, capital, time and energy. Not every individual is cut out for it. Long work hours can cause exhaustion and lead to a lack of interest in the business which can stunt its growth. Proper management helps you to plan and allocate the work to the right staff, so that you can find some breathing space for yourself.
Faulty location: Visibility is very important for a small business. If the store is not easily found by clients and suppliers, profits could suffer. So, make sure that your business is easily accessible.
Poor selling techniques: Businesses fail if owners are not able to get potential customers to buy their products. So, make sure that you are practicing proper selling techniques that not only make a customer buy a product, but also encourage him to revisit your business.
Postponing tasks and improper time management: Deferring important tasks can be lethal to a business. Staff can be hired if necessary for doing tasks that the business owner doesn’t like to do.
Poor customer service: Business is not just about selling the products/services, it's also about caring for the customers. A poor customer service such as not replying quickly to emails, phone calls etc. can lead to customer dissatisfaction. Also, not addressing the needs of a customer may weaken the bond between the customer and the business.

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