Common Reasons Small Businesses Fail

Common Reasons Small Businesses Fail

The main reason why most small businesses fail is that they are continuously losing money. The primary goal of starting a venture is to make a profit from the products and services you offer. While it is normal to not immediately gain back the capital while your business is still young and finding its place in the market, sooner or later, the business should earn more than its starting point and must be able to pay back all its previous loans. But if you lost all funds and are deep in debt, these following factors may be the reasons that contribute as to why your business is going downhill.

Poor Management and Lack of Leadership

Most of the time, the problem is in the entrepreneur. The small-business owner is expected to be the leader of the company who ensures that everything goes smoothly and deals with any problem that arises. But the owners should accept that they are not capable of doing everything. Yes, they should take on major roles and be involved in everything, but everyone has different skills that fit certain roles better than others.

The best way to manage a business by yourself is to have people who take on the roles you cannot adequately fulfill. This involves having advisors or mentors giving you recommendations to help you run your business. They will tell you that you need the help of experts in marketing or financing if that is where you don’t have enough skills. They will ask you to find workers who will take on the jobs that your time and energy can no longer account for. And here is where your leadership, your most vital skill, must come into play.

Reid Hoffman, co-founder and chairman of LinkedIn, explained in Insider that as a company leader, your responsibility is to build good communication and trust within your team. This will encourage them to work as hard as you to keep your business thriving.

man frustrated

Poor Planning or Poor Execution or Both

The business plan and the execution of its operations can make or break a company. If a business plan starts with a less-than-ordinary idea, the business will not prosper no matter how satisfactory its products or services are.  Correspondingly, a good plan will not see good results if operations are poorly executed.

To bring a business to its full potential, it should start with a fresh, unique, and appealing idea that already has a potential market. A well-researched plan about how to give life to this idea must follow suit. In this plan, goals must be clearly defined to give the business a trajectory for growth and expansion. Every problem that may arise in the future should be considered and should have a corresponding number of solutions to deal with them. Trends must also be predicted.

Lastly, this well-written plan must be implemented. Following every step is ideal, but because the market will always be unpredictable, it pays to be flexible while still keeping your eyes on your goals.

Not Listening to Customers

A business should know how to listen to its target market. The customer is an essential party within a business relationship. According to Bruce Claver in Forbes, customers will always have a say in the kinds of products and services the business provides. They pay all the business’ bills; therefore, they dictate the quality and quantity of everything that will be served to them.

When the entrepreneur fails to listen to their demands, dissatisfaction will arise, leading to a loss in sales. Similarly, certain situations when the entrepreneur gives in to customer demands but cannot properly supply the needs will also lead to an unsatisfied market. This entails that a business should always take customer feedback into account while knowing its capabilities.

But starting any business is a venture, which means that risks are always involved. If, for some reason, major financial problems continue to persist, debts are piling up, more money is lost than earned, and the business is no longer salvageable, the entrepreneur should consider consulting a bankruptcy attorney. A good business owner should also know when and how to end the business they started.

Looking on the bright side, when one door closes, another one opens. This should not be the end of your business venture. Equipped with the knowledge of why your previous business did not flourish and having made better preparations and plans to start with, building a new company will give you another ticket to the success story that everyone is reaching for.

Scroll to Top