According to recent U.S. Bureau of Labor Statistics data 80% of small businesses will survive their first year, over 5 years this percentage goes over to 50%, and when you think of 10 years only 33.3% of businesses survive. Research by the SBA found that about 1 in 12 businesses close in the US every year.
In this blog post let’s discuss the 6 major reasons why small businesses fail and what you can do to avoid the failure.
1. Weak Leadership
Management skills are super important in business success. These skills are the secret sauce that keeps the business running smoothly.
Hey there, let’s chat about something super important: Management skills. Think of them as the secret sauce that keeps your business running smoothly. But hey, we’re all human, and sometimes we miss the mark. So, what does poor management look like?
If you were not in a leadership or management role previously you will struggle making all those important strategic decisions or supervising the staff.
If the business leadership is not strong then things can get a bit messy. Picture this: public disagreements, and mixed messages to your staff – not exactly the recipe for the smooth running of a business.
How to avoid leadership failure
Recognizing the failure at the leadership level is the first step toward turning things around. With some reflection, some leadership training, finding the right mentor, and maybe even a team pow-wow, you can sharpen your management skills and steer your business back on track.
2. Unprofitable business model
Like weak leadership, building your business on an unsound business model or without a solid plan is like trying to navigate a ship without a compass. It’s important to have a roadmap and ensure your business idea has a proven revenue stream. Without strategic guidelines, even the best ideas can face hurdles during implementation.
How to build a good business model
One key thing to thrive in your industry is to know and learn from other successful businesses of your industry. By researching and reviewing their operations, you can gather valuable insights and decide on the business model. You should have a good business plan at hand that should include everything from financial forecasting to strategic marketing and solutions for overcoming potential obstacles and competitor activities. Create a milestone chart because it will help you to track progress, tackle challenges head-on, and stay laser-focused on your objectives.
3. Poor financial management
Statistics in the U.S. say that about 40% of small businesses remain profitable, 30% break even, and the remaining 30% unfortunately end up losing money. To keep your business afloat and thriving, you have to have a tight grip on your finances and must know every dollar that’s coming in and going out.
A contingency funding plan must be ready for those rainy days – think of it as your financial safety net in case of emergencies. Good accounting practices is yet another important thing. Poor management of cash flow, taxes, and expenses can be fatal.
How to manage your finances
There is good business accounting software available in the market like QuickBooks and Xero. They keep records of all financial transactions, including every expenditure and all revenues received, and use this information to generate income statements. There are business dashboard tools like LivePlan that make it easy to monitor your financials. These all are valuable information about your finances that make you aware of where you stand at all times. If you find financial management difficult, consider hiring a small business advisor and professional bookkeeper or certified public accountant to help manage your financial affairs.
4. Absence of uniqueness & value
Your product or service can be great and has a great market demand, but even after that, your business may fail because your business might lack a strong value proposition or the approach can be mediocre. There can also be stiff competition for the product or the service and you find it difficult to stand out in the crowd.
How to set your business apart
It would help if you differentiated yourself from the crowd by crafting a unique approach or service package that no one else in your industry is offering. This customized offering becomes your strong value proposition, drawing attention and interest from potential customers. Your brand identity, including your logo, tagline, and business philosophies, should align with this value proposition, setting you apart from competitors and resonating with your target audience.
To position your brand effectively, you must step up your marketing game across multiple channels including social media, word of mouth, cold calling, direct mail, and other proven techniques to spread the word about your business. Additionally, prioritize optimizing your online presence, offering high-quality content, and implementing lead-generation strategies to capture contact information and nurture relationships with potential customers. By showcasing your unique value proposition and effectively marketing your brand, you will attract attention, capture market share, and increase your conversion rates.
5. Not in touch with your customer needs
Neglecting to stay connected with your customers is like missing out on valuable insights that could help your business thrive. Your product or service might be great, but what if there is a feature your customers wish you would tweak or a procedure they would love to see changed? Feedback from your customers may have a secret recipe for the success of the business.
How to be in touch with the customers
Do market research and customer surveys to find out the interests of the customers and the current trends in the industry. Customer management tools are quite handy in such cases. Effective use of CRM can help keep your business from failing. Take a moment to tune in and hear your customers out. Always keep an eye on the market trends, there could be a shift happening. By staying engaged with your customers and staying ahead of the curve, you’ll ensure that your business remains relevant and thriving for years to come
6. Rapid growth & over expansion
Sometimes, things can take off faster than you ever imagined. Suppose you launch a good product on your website and immediately you are flooded with orders that you can’t keep up with. In such case, you may stock more than the required inventory only to know later that the goods are not moving. This is a sure-shot path to failure.
How to avoid growth & expansion problems
Just like managing day-to-day operations, growth and expansion require careful planning and strategy. Even the big players, like fast-food joints and convenience stores, don’t dive into new locations without doing their research first.
Check out the local demographics, spending trends, and future development plans for the area. Make sure that the timing is right and that you have the funding to make it happen.
You must make sure your existing business is quite stable with enough inventory, don’t overcommit, but have a plan ready to meet demand when it comes knocking.
Strategic planning is the key to successful growth and expansion.