Small Business Failure Checklist
You need to use our Small Business Failure Checklist, since:
• 20% of new small businesses fails within the first year of operation,
• Half of all small businesses fails within the first 5 years, and
• Only one-third survive longer than 10 years.
Business failure is almost always attributable to the entrepreneur that started the small business. As small business owner, you must be aware of challenges you are facing; why small businesses fail; and when to get help to prevent it.
Business failure does not only mean going out of business. It can also mean your business fails to meet your expectations; do not provide you with an adequate personal income stream; or help you prepare for retirement.
As a guide to help small business owners we have compiled a comprehensive Small Business Failure Checklist. Work through the list and identify the issues that can cause your business to fail. Be honest when you answer the questions. If answering yes, compile an action plan to address the issue. Bookmark and review the list from time to time!
Small Business Failure Checklist Topic 1:
Pitfalls You Should Avoid
- Starting for the Wrong Reason? Do not start a business because it’s your hobby; just to make money; you have a great idea; or you want to be your own boss. It’s hard work! Initial excitement will dwindle, and enthusiasm is not enough to succeed.
- Lack of Knowledge/Skills? In addition to having the technical skills of your product or service within the industry you’re entering, you must know how to manage the business successfully. Get a partner to compliment your skills or acquire them.
- Choosing the Wrong Business Partners? Having a partner with unrealistic expectation; entitlement attitude; not a team player; not the right skillset; etc. lead to endless problems and conflict. Choose your partners carefully. Shareholders Agreement?
- Not Noticing Changes in Your Environment? You may so busy “Working IN your business and not ON it” that you do not notice your market, competition, etc. changes. Your daily operations should run without you actively involved all the time.
- Entrepreneurial Burnout? Try to do everything yourself; too much of a perfectionist; and coping with all the stress involved in owning a business; will result in you working long hours, being stressed and fatigued. You will lose focus and make mistakes.
- Entrepreneurial Arrogance? Being stubborn, self-righteous, paranoid, short tempered, critical or not needing advice or help form anyone will lead to failure. Founder dependence creeps in and employees will do just enough to stay out of trouble.
Small Business Failure Checklist Topic 2:
Not Planning and Thinking Ahead
- Unprofitable Business Model? Insufficient demand for your product or service; at the price-level you have set for a specific target market? You need to test your idea in the market and prepare a business plan and make sure you will be profitable.
- No Differentiation? Having just a great product/service is not enough for success. You need a unique value proposition (why a customer should buy your product or use your service) that sets you apart from the competition.
- Lack of Direction and Planning? Your best business ideas will most likely fail if you do not have a roadmap to success. Create a business plan outlining your business concept with management, marketing, operating, financial and HR strategies.
- Growing Too Fast? If your business is not growing at steady pace; you will not properly deal with your growing pains; and you are borrowing too much money could cause business failure. Being successful is not growing fast but to make money.
- Lack of a Succession Planning? Have you identified the key people in your business and are you prepared if they depart unexpectedly, retire or die? This could have a big financial impact, power struggles, problems partner families, etc. “Key Person Policy”?
- Lack of Exit Planning? You need an exit strategy based on your personal goals when you start. Do not be in the position where you have been working hard your whole life and cannot retire/exit or have nothing to sell or pass on to family. Business Evaluation?
Small Business Failure Checklist Topic 3:
Not Generating Enough Sales
- No Marketing Plan? You need to have a clear idea of your product/service, target market demand, market trends and competition to develop an affordable pricing strategy. In addition, you need an adequate marketing/advertising budget.
- Unable to Find and Retain Profitable Clients? You need to know the make-up of an ideal paying customer and how to get/retain them. Putting all your eggs in one basket is also not a good idea (bullying).
- Underestimating Competition? Know the existing competitors and watch out for new ones. You need to earn the loyalty of your customers. That does not just happen. Makes sure you customers are happy and take good care of them; so, they will stay with you.
- Poor Choice of Location? If you receive customers, you need to be conveniently located with adequate parking. Especially, if your business relies on foot traffic a bad location could be damaging to your business.
- Ineffective Sales Techniques? You and/or your salesforce must understand the basics of selling and how to close sales. It is important to listen; know the unique selling points; pitch the solution; handle objections and make the sale.
- No Website or Social Media Presence? You need a professionally designed website and use social media so that potential customers can easily find your business. It’s one of the most effective and affordable ways to market your business.?
Small Business Failure Checklist Topic 4:
- Poor or Dysfunctional Management? Lack of management skills result in confusion, conflict, low morale and eventually reduced productivity and profitability. Adding fighting partners and discontent relatives in the mix and your business have real problems.
- Lack of Leadership failure? Poor leadership and the inability to learn from previous mistakes can result in failure. It might be that you are unaware of your own mistakes, but the result is the same. You need to make the right decisions most of the time.
- Not Managing Information? Information is the key to know what is happening in your business environment and in your business. It could be time consuming and challenging, however, un-informed decisions can have serious business implications.
- Not Managing Time? Prioritize, schedule and spend your time wisely. Make sure that things get done on time. Don’t postpone tasks that you don’t enjoy. Avoid be so involved in the daily running of the business that you have no time for reflection and planning.
- Operational Inefficiencies? Be able to identify and track inefficiencies in processes and problems in utilization of resources. It is essential that all major processes are properly streamlined/documented and operating practices/procedures are in place.
- Balancing Quality and Growth? You must find the balance between delivering less than perfect quality and an obsession with quality at all cost. During growth, make sure you are not sacrificing the quality of your product or service just for the sake of growth.
Small Business Failure Checklist Topic 5:
- No Financial Planning? Budgets serve as you guide for day-to-day or long-term financial decision making. They help you better understand your bottom line and enables you to measure and access the overall financial health of your small business.
- Poor Record Keeping and Financial Controls? Not properly keeping track of your financials is flying your business blind. Budgeting creates a baseline to compare actual results to determine how the results vary from the expected performance.
- Cash Flow Problems? Don’t ride the cash flow roller coaster. Cash flow and profit is not the same thing. You need a positive cash flow to survive bankruptcy. Maintain a cash cushion to pay bills. Your business is not your personal bank account.
- Not Staying Profitable? Always focus on staying profitable and do not let chasing sales, revenue or customers cloud your judgement. Lacking profit could put you out of business even with record sales.
- Insufficient Start-up and Operating Capital – You need to know how much money you need to start the business and cover all costs until sales can eventually pay for these costs. Inadequate access to working capital can cause your business to fail.
- Premature scaling or Overexpansion? That is, you prematurely spend money beyond what is essential to grow or expand to too many business verticals (niches) Always optimize your existing market as review the profitability of such ventures.