5 Reasons Why Small Businesses Fail

August 20, 2014 | 2,171 views

5 Reasons Why Small Businesses Fail

5 Reasons Why Small Businesses Fail

Starting a small business is not an easy endeavor. In fact, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. In order to avoid becoming a statistic, it’s critical to understand why companies don’t succeed and make plans to avoid making mistakes. Here are five main reasons small businesses fail and how you can avoid these common pitfalls.



1. There is not a demand for your product or service.

The first thing you need to determine (preferably before opening shop) is whether there is a market for what you’re selling. You may have a great idea for a business, but without customers or a demand, your business won’t be profitable. It’s also important to know if your offering is part of a steady or declining market. A music store is an example of a declining market because most people buy their tunes online. So many small businesses fail because they did not determine the supply and demand feasibility.


The Fix: Do some digging before you start your business. Talk to your target customer and find out if they would buy your product.


2. Your business is growing too fast.

While many business struggle with not having enough sales, some fail because they grew too fast and couldn’t keep up with the demand. While it doesn’t happen every day, some companies may receive orders from retailers for large amounts of the product to resell. The problem is the business doesn’t have the quantity in stock or capital to produce the product. As such, lucrative orders can go unfilled and businesses fail.


The Fix: Make sure you have a plan in place for scaling rapidly before you start selling items to assure this won’t happen to your business.


3. There’s a lack of financial resources.

Many small business owners believe their early-days revenue will easily cover expenses. Yet often times, often you won’t see a profit for at least one year. This leaves you without sufficient operating funds. Even if a business starts turning a profit quickly, there will inevitably be periods where sales ebb.


The Fix: Get a cash reserve to weather those leaner times before you launch your business.


4. You don’t have the right technology in place.

Your business may have a great product or service and be turning a profit. However if you don’t have the right systems in place to maintain operations, it’s likely you’ll be met with failure. Accounting software is a must-have for small businesses. If you have employees, you’ll need human resources software and a means for communicating with them, as well as scheduling their shifts. You may be tempted to make do with an easy solution, but simple Excel spreadsheets won’t cut in the long-term.


The Fix: Don’t skimp on the technology you need to help your company run smoothly.


5. You’ve got a lack of management at the top.

Many small businesses fail because there is not a skilled  manager leading the company. Maybe as the business owner you have great ideas, but you might lack a business background, marketing knowledge, financial expertise, or experience leading employees. If you don’t ask for help and try to be a Jack-of-all-trades, you may fall flat.


The Fix: Know your skill set, as well as your weaknesses, and ask for help in those areas to avoid failure.


If you own a small business – or plan to start one in the future – be sure to have a plan in place detailing how you will respond to each potential scenario. Only by being proactive can you assure your business will succeed.

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