Many new small business owners get caught up in these common pitfalls. Learn what mistakes to avoid and increase your chances of running a successful business venture.
According to the Small Business Association, the majority of new small businesses will shut down within the first five years of operation. Though circumstances may vary from one company to another, this high failure rate is generally attributed to several common factors. The business owner who is aware of these pitfalls can avoid making costly mistakes and is thus in a better position to run a successful venture.
Reasons Why Small Businesses Fail
The following are a few common factors that can bring a small business’ operations to a screeching halt:
1. Business owners have unrealistic expectations or choose ventures that are inappropriate for their personalities, lifestyles, or experiences. Before starting their ventures, aspiring entrepreneurs must make sure that they are clear and realistic about what they want to get out of their businesses and what they have to offer in terms of time, commitment, and experience.
2. Business owners are unfamiliar with the basics of business management. Many small business owners lack a formal business education and have never experienced running a small business. They may, therefore, be unaware of some basic tools and guidelines for effective business management. The good news is that there are numerous free or low-cost guides, articles, and tutorials available online that can fill in this information gap. (For starters, check out the websites of the SBA, SCORE, and the National Federation of Independent Business)
3. There is a lack of adequate planning. Business preparation is a continual process of setting intentions, developing plans, and working every day to complete them. Proper business planning spans all areas of the business including budgeting, tax planning, and marketing, as well as growth and development.
4. Business owners fail to consistently and effectively monitor their businesses. Planning means nothing if business owners are not monitoring how well their businesses are operating so they can make any necessary adjustments. Business owners should pay attention in particular to the daily cash flow, to the business’ sales and productivity, and to the movement of products and supplies through the business.
5. Small businesses lack the necessary capital for operation and growth. One of the most important reasons why small businesses fail is that they are unable to get the funds they need when they need it. When a business loan is hard to come by (which is pretty common these days), many business owners in desperation or in ignorance make the mistake of choosing a method of financing that is either inappropriate or detrimental to the health of their businesses. For example, they apply for high-interest, sub-prime loans or payday loans, or they rely too heavily on their business credit cards. Business owners should be aware that there are several, relatively safe financing methods available such as SBA micro loans, invoice factoring, vendor financing, and merchant cash advances.
6. The marketing techniques are ineffective or too expensive. Marketing is essential to expand and maintain your customer base. If a business owner’s current marketing techniques are not bringing in customers or if they are putting a great deal of stress on the operating budget, then they should be re-evaluated. Small business owners who do not have the time or knowhow to effectively market their business should hire someone else to do it.
7. Business owners ignore their competition. The success of a small business largely depends on how effectively owners can differentiate their products, services, and solutions from those offered by their competition. A small business’ unique selling point is its greatest asset. To maintain a competitive edge, business owners must stay in touch with the current market trends and be aware of what their competition is doing.
8. Business owners are out of touch with customers. Small businesses often fail because they do not respond to the changing needs and attitudes of their customers Having a personal relationship with customers is an important asset that many big corporations do not enjoy. In order to maintain excellent relations with their customers, small business owners should focus on quality products and services, should monitor customer satisfaction, and ask their customers for suggestions or improvements.
9. The small business is not in a suitable location. As the old saying goes: Location! Location! Location! Small business owners fall into the trap of choosing a location based solely on cost savings, and they may overlook factors such as zoning laws (for a home office), professional appearance, and customer interest or convenience.
10. Business owners fail to actualize their employees. Many small business owners do not realise the hidden hidden within their own workforce. When workers are happy then productivity rises and customers have a more positive experience that can lead to an increase sales. Employees are also a source of business-improving suggestions and problem-solving ideas. Therefore, where possible, business owners should make sure to establish a system of employee advancement and work performance recognition.
11. Business owners fail to invest time and money in research and development. To be successful, a small business must set aside time and resources to research and development to determine possible areas of expansion and to implement cost-cutting techniques. This ensures that the business is running efficiently and improves flexibility in response to market demand.
12. Small businesses are not using easily available business tools and technology. These days, SMEs have access to a wide range of savvy, low-cost business accessories, software packages and services, and technology that is giving them a leg up on even their big competitors. Small business owners who wait to embrace it may be making a costly mistake.
13. Not looking after staff. Good staff will want to work for a company that has their interests at heart, as well as that of the business. Helping staff with healthcare and pensions will help you keep the best staff, rather than having them run off to the competition.
With a little planning and know-how, new small business owners can avoid these common mistakes and stay open for business.