13 Reasons Why Small Businesses Fail

The statistics for failing small businesses are very scary for start-ups and entrepreneurs looking to begin their own business. Although business births outnumbered business deaths by 105,000 in 2014, the number of small business closures was still a shocking 246,000.

If you’re a start-up and don’t want to see your business as one of the 246,000, it’s a wise idea to take some tips about how to keep your business going. Here are 13 of the top reasons that small businesses fail – if you’re doing one of these (or more!) it might be time to do some serious reconsideration about how you’re running your business.

Starting a Business for the Wrong Reasons

Nothing spells trouble like someone starting a business because they want the money, fame and contacts. For a business to have any chance at success, its founders must be dedicated to the cause, by producing a service or product they believe in.

Hopefully, if you’ve got the right reasons to begin with, everything else will come naturally. Unfortunately this doesn’t work the other way around, so don’t expect the money to roll in when your heart’s not in it!

Poor Management

You might be dedicated to the cause and want to get your product to the people, but saying and doing it are two very different things. Being able to execute plans and direct employees effectively to get results can be a struggle if you’ve not had management experience or if you aren’t comfortable in a leadership role.

Consider your own comfortability with the project and your role t before you plough ahead and go through with it. It’s always important to take risks, but make sure it’s the right risks!

Location

With the rise of the internet comes a decline in need for physical outlets and stores. Many businesses work well by operating solely on social platforms with only online marketing to display and sell their products. However, this doesn’t mean that location is completely irrelevant.

Location may not be as important as it used to be, but to physical small businesses it’s vital. The ideal location for more rural areas is in the hub of the local community, where local support is readily available and custom will be more likely. Other things to take into account are rent prices, accessibility for employees and quality of the property.

Ineffective Marketing

Your business could be making the best product on the market, with a very high demand for it. But if you aren’t marketing correctly, no one will know about you so no one will be buying your product!

Ineffective marketing is one of the easiest problems for a small business, as it can be fixed simply and with very little money. Just buying some business cards, creating a website and a social media account will give you exposure. Updating and reviewing them regularly is necessary for the upkeep of the company, but still remains a low maintenance part of running a small business.

Overexpansion

In contrast to these scenarios, your business may have gotten off to a great start and even be growing. But there’s another pitfall. A growing company reeks of success, but knowing how to grow in the best way for your business is key.

Growth requires putting a certain amount of money back into the business in order for it to gain more resources and continue with a sustained quality of work. You’ll need to invest in new employees as your business grows, and it is a failure to do this that keeps growing businesses from breaking into the mainstream market.

Failing to Outsource

Failing to delegate tasks to others and even to look outside of your employees for inspiration and work (hiring a freelancer, for example) will simply lead to a failed business. It can be difficult for business owners to accept that they cannot be wholly responsible for the company they founded, but realising this sooner rather than later will have positive results.

Lack of Planning

Thinking in advance is one of the ways businesses keep on top of customer expectations. It’s important to keep ahead of the game and anticipate market trends in order to run smoothly, and to minimise unexpected market changes.

Failing to plan and take the necessary measures for such events can lead to the collapse of a company in a crisis. Keep on top of your workload and expect (and plan for) the worst in order to continue making a profit.

Inadequate Business Plan

A business plan is an essential piece of company information that should be provided during the company formation. A good business plan will cover a range of topics from your company’s mission statement to the timeline of your formation and distribution.

The aim of this document is to be able to spot holes or issues that may present themselves further down the line, and eventually cause the business to fail. Without an extensive business plan that covers marketing strategy, it’s less likely you’ll see any problems coming, and it also suggests you aren’t business-savvy.

For more information on writing a business plan see our article How to Write a Business Plan.

Lack of Online Presence

We’ve briefly mentioned online marketing and how simple steps can improve your general marketing strategy with little to no cost. We felt that it was such an important issue in the demise of small businesses, that it must be reiterated.

Without a professional online presence, people will not know where to look for you. Connecting with businesses is one of the main ways customers decide if they want to buy a product, so spend time getting to know your social accounts and how to use them, before you dismiss them as a platform for only young people!

Failing to Price Correctly

While you may have got every other aspect of the business right, it can all come tumbling down around you with bad pricing. This is where knowing your competition comes in handy, as their prices are often in the right area, and you know where you can try and undercut them. Having a price that is too high will drive away customers, while having a price that is too low will have them questioning the quality of the product. It’s a fine line which you need to master in order to receive the most business.

Poor Customer Service

Alternatively, you may have the perfect price for your product and be contacted by customer after customer! This is the ideal situation for any business, and it should be pretty straight forward from this point. Unfortunately, many forget that the deal isn’t quite closed yet.

Good customer service should be at the top of every small businesses’ to-do list, as it’s the one aspect that keeps everything ticking over. With good customer service comes loyal customers, who will be willing to return again and again for the friendly chat and warm welcome. Keep this in mind when you’re beginning your business, as the experience of buying is rated highly in a customer’s check list.

Failure to Understand the Market

Either not knowing who you’re targeting or not knowing what your customers’ interests are is essentially failing to be a business. You can’t expect to begin when you haven’t got a clue who you’re marketing to. Simple steps such as taking time to define your target market and ask them about your product during each stage of production will be invaluable information for any business.

Financial Difficulty

It’s easy to say that all of these points are the most important, as without any one of them a small business could easily fail. Nevertheless, running into financial difficulties can effectively put the death stamp on a company. There are so many aspects to finance for a business that could go wrong – some with more serious outcomes than others.

Anything from forgetting to keep your receipts to submitting an incorrect tax return can cost your business a serious fine from HMRC. Other financial issues such as lack of funding or simply overspending can also cause a business to fail. The easiest solution? Speak to an accountant here for some advice!

What do you think causes an SME to fail? Do you agree or have you got an opinion of your own? Let us know by leaving a comment in the section below!

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