Small business

Why Small Businesses Fail

Business failure isn’t what start-up founders would want to think about when they’re starting a business. However, if you want to be successful in business, you must learn about business failures and avoid them. There are several reasons why small businesses fail.  In this article, I’m going to highlight seven top reasons that regularly cause small businesses to close down.

1. Motive

For every two minutes, at least one company is set up in the UK. About 657790 small companies started last year in the UK. The rate at which people are engaging in business activity is encouraging. However, many small businesses failed because of the motive behind starting the business.

Recently, I had a chat with a few budding entrepreneurs about starting a business.  One of them said he’s interested in starting his own business because that is the right thing to do. Others said they no longer want to work for anyone because they can do better financially if they start their own businesses.

Whilst I was talking with young budding entrepreneurs, I realised that all of them do not have the experience and business acumen to run a successful business.  It is crucial that you get your reasons for wanting to start a business right.

Even if you’ve identified a gap in the market, you need to determine if there is a market for the gap you’ve identified.

Starting a business is not about making money. Most successful entrepreneurs started a business because they want to make the world a better place.  They want to add value to people’s lives through their company.

What drives you into starting a business is what will sustain you when you encounter  difficulty.

If your reason for wanting to start a business is to make money, what will happen if your business is not making enough money?  You’ll probably close it down, right? Get your motive right.  If you want to build a successful business, you need to focus on solving problems and adding values to people’s lives rather than thinking of making money.  The money will eventually come.

2. Capital

It is not debatable that cash is king in every business. Majority of small businesses fail because they ran out of money.  Without money, your days in business are number. You need capital to cover both capital and operating expenses.

It is okay to raise start-up capital, but you’ll need more than start-up capital to grow your business.  Growth inserts the pressure on cash flow, especially where there’s less money coming into the company.

People think that with the right idea, you can always secure a bank loan or raise capital from investors.  Well, you may be lucky to obtain a loan from the bank or secure investment from an investor.

However, for a bank or an investor to consider your application, you need a good business plan and realistic revenue forecast before they invest in your business.

Nobody wants to hear I’m sure the business will be profitable.  Investors need a bit of certainty… they want to see some figures and how you arrived at it.

Most small business owners don’t understand cash flow or underestimate how much money they will need to start and run a success business. To avoid running out of cash, you need to have the right financial skills (you can seek advice from a financial adviser) and a well-researched business plan to keep your business running, while you’re pushing hard on generating more income needed to sustain your business.

3. Planning

Simply put, if you fail to plan that mean you’re planning to fail. If you focus on enjoying the benefits of being an entrepreneur than growing your business, then be ready to cease trading.

As a small business owner, you’re the driver of your business. You need to steer your business to success. You can’t sit in the passenger seat expecting someone else to plan your business. You need to think ahead and come up with an excellent strategic plan.

You need to think about your target customers and how to reach them; plan your sales strategy, branding, marketing, competitors etc.

4. Reluctance to Delegate

If you can’t delegate some tasks to others, then be ready to fail. Most CEO doesn’t like to assign jobs because they believe other people can’t do the tasks correctly.

They often say: No one can do it better than myself or I can’t trust anyone else with that task. You can’t grow your business if you can’t delegate.

Delegating tasks helps bring out the very best in the people that you employ. It allows you to concentrate on other tasks.

5. Online Presence

If you start a business today and you don’t have a website or business page on social media, you’re missing out.

Statistics available shows that 89% of adults in the UK use the Internet in the first quarter of 2017.  About 99% of people that used the Internet were adult aged 16 – 34 years.

The current report by Facebook shows that over 2 billion people are using Facebook on a monthly basis.

In December 2016, the value of online retail sales peaked at approximately 1.5 billion British Pounds and decreased to around 900 million British pounds as of January 2017- Statista.

It is expected that online retail sales will grow in 2022.These stats show the importance of the Internet and Social Media in driving sales and business growth.  If you want to grow your business, you need to create at least one social media account for your business.

Also, every small business should have a responsive website so that customers can find information about their products and services.

One of the best ways to drive sales online is by listing your business in a local business directory. You should consider registering your business on local business directories like Yourbusinessfinda.com, Yell or on Google My Business. The importance of having an online presence – social media and a website cannot be overemphasised. You can create your site yourself by using a template from Wix and Shopify.

Learn How To Create A Website: A Step By Step Guide

6. Management

One of the top reasons why small businesses fail is the lack of management and leadership skills. I have seen high-street companies go into administration because of poor management.

Leadership and management skills are two essential skills that every CEO and business owners need to drive their business forward.

If you’re not good at managing and leading a business, then find someone you can employ or a business partner who is good at it. You need to have the right skills set to drive your business forward.

You can also invest in yourself by reading books on leadership from authors such as John Maxwell, Steven Covey, Brian Tracy and attend seminars and conferences.

7. Location

An excellent location is critical to the success of your business. If you’re thinking of starting a business, you need to do thorough research on the site. You need to research the city you intend to start your business.

Do proper market research and identify who and where your targeted customers are.  Think about how your targeted customers will get to your office. Is there a good transport network? Can they access your office by road and train? Is there a free parking lot?

If you’re running a product-based business, you need to think of the cost you and your customer are going to incur on transportation.  It is more likely for your targeted customer to patronise your competitors if they are close by than travel far to buy your goods.

A poor business location can ruin a well-managed business. Likewise, an excellent business location can help a struggling business grow.  Please choose your business location wisely.

Conclusion

There are several reasons why small businesses fail. Don’t jump into starting a business.  Do proper research, get your motive right, plan for it and avoid unnecessary spending.

Are planning to start a business soon? Get in touch for a free consultation. If you like this article, comment on it and share it.

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