The 6 Reasons – Why Do Small Businesses Fail?

The 6 Reasons – Why Do Small Businesses Fail?

The Six Reasons- Why Do Small Businesses Fail?As a small business owner, you face many challenges and pitfalls today. Sadly, many small business owners do not know that small business failure is imminent until it is too late. The important question is: Why Do Small Businesses Fail? By knowing the main causes a small business fails, you can be prepared and avoid these pitfalls.

Starting a small business is always a risky venture for the entrepreneur.  Regardless of the type of business, I believe that small businesses fail because they fail to plan. With no business plan, succession plan, or exit plan, you are destined to have significant problems in running, funding and selling your small business successfully.

Here are six important reasons for Why Do Small Businesses Fail?

1. Making Mistakes when Starting Your Small Business

One of the biggest mistakes that causes a small business to fail is starting a business for the wrong reasons. In addition, they don’t have a viable business model and fail due to a product/service market misfit. There is simply inadequate demand for the specific product/service at the price point for their target market. Also, by making bad choices, such as business partners/management team and location, they set themselves up for small business failure. Not having access to sufficient startup capital to fund the business properly at startup could lead to failure.

2. Lack of Direction and Strategic Planning

A significant number of small business failures are due to bad planning. Strategic planning prevents short-term thinking and significantly reduces your risk of failure. With a well-structured business plan, you know where you are going and what you need to do to get there. Also, it provides focus and keeps you on track in meeting the goals and dates set in your business plan. Furthermore, it aligns management and staff to your vision and goals and gets everybody on the same page. In addition, it will help you find funding.

3. Small Business Management Failure

Poor management is the number one reason why small businesses fail. Frequently, management lacks the business knowledge and leadership skills to run a profitable small business. Bad management results in misunderstanding, conflicts and low staff morale that lower productivity and profitability. In addition, management must stay on top of the finances at all times. Just as important, small business owners must be able to identify and track workflow and process inefficiencies, as well as resource utilization. Read more: 10 Good Reasons for Small Business Performance Measurement

4. Business Failure Due to Poor Marketing and Customer Service

Small businesses failure are also due to owners who think they know what their customers want. Nor do they engage with them to find out what they really need. In not meeting the “unknown needs” of  your customers you will start losing customers and small business failure is likely. In addition, many small businesses fail because they do not market properly and follow ineffective sales practices. Customer service remains the most important thing that a small business owner must get right. It takes years to build a reputation which is ruined with just a couple of bad customer experiences.

5. Not Keeping Pace with Changes in Internal and External Business Environments

Small business failures are also caused by ignoring changes on in your Internal and External Business Environments. You can significantly reduce business risks by being aware of them and knowing how they impact your business. Changes in your business environments affect your profitability and should influence the way you do business. Obtaining and managing information on the internal and external risk factors will help you to steer the course to small business success. In addition, it will keep you ahead of the competition and avoid you making detrimental, uninformed business decisions. Read more about Small Business External Environment and Small Business Internal Environment to identify your relevant risk factors.

6. Entrepreneurial Arrogance of Small Business Owners

Some small business owners can be arrogant, control freaks, stubborn, self-righteous or distrustful, or attempt to do everything themselves. Eventually this also causes a small business to fail. They must surround themselves with the right people who complement their skill set. Furthermore, they must be able to listen to advice, be willing to delegate and let go of certain decisions.

There are many more reasons that can be discussed in answering the question why small businesses fail? Be prepared, Click here for more reasons on Why do small businesses fail?.

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