Small business owners pour a lot of their time and money into their efforts to achieve success. In spite of acquiring funding and putting forth their best efforts, many of these small businesses fail. According to sources , about half of all small businesses fail within the first five years.
In most cases, the failure is not the result of a lack of drive or effort – they just fell victim to issues that are all too common among small businesses. Many entrepreneurs are not aware of the common factors that cause businesses to fail. As a result, these small business owners do not even realize they are headed down a path to failure.
Here are a few of the common reasons why small businesses fail and what you can do to prevent them from taking your business down.
A Lack of Leadership
For a business to succeed, it requires leadership and sound management practices. A good leader knows how to define his or her goals and they have a plan for reaching those goals. Along with that, a good leader understands the role of every employee and how each person contributes to the success of the company.
If the person at the top lacks leadership and does not take charge, the effects will trickle down to every level. Employees will not know from where they should take direction or how they fit into the bigger picture. This can lead to confusion among the staff, unnecessary conflict, low morale and poor performance.
As a small business owner, you have to be a leader. If you don’t take the reins, your company will lack direction and it will be impossible to reach your goals.
Not Listening to Customers
Ignoring customer feedback can be a fatal mistake for a small business. Providing a good customer experience is vital for a small business, and customer feedback is the best source of information in this regard.
For the modern small business, there is no shortage of places to find feedback. Customers will share their experiences on social media and you can also check reviews from Yelp or Google. Additionally, this feedback can offer an opportunity to engage with your customers.
Check social media feedback and review sites to see what you are doing well and what you could be doing better. And remember not to take negative feedback as an attack; most of these reviews are from real customers sharing their honest experience.
Keeping track of your finances is one of the most important parts of running your small business. However, this is easier said than done. You have transactions with customers or clients, payments you have to make to suppliers, utility bills, payroll and more. If you don’t make an effort to keep track of your finances, it can easily get away from you. This can lead to issues with missed or late payments or a lack of operating capital at critical moments.
If you want to ensure the success of your business, you need to get a handle on all of the money coming in and going out. This means that you are going to have to keep a detailed set of books and manage your accounting.
The best way to do this is to use some type of small business accounting software. Many of the top software products can integrate with other systems like invoicing to automate much of the process. This will help you to maintain an accurate record of your finances.
Poorly Defined Business Plan
This is a problem that can hit new business owners hard. You develop a plan that seems detailed and sound, only to have it unravel when it meets reality. Having a good business plan is about more than having a great idea or finding a niche in the market. You have to plan everything from your initial startup funding to getting your products in the hands of consumers.
Some of the points you will need to consider when developing your business plan include: How are you going to acquire funding? Who are your primary customers? Are you going to operate a physical location, sell online or both? How are you going to raise awareness of your business? Do you have a marketing plan?
While having a business plan is important during the startup phase of your company, it is something that should be revisited from time to time. Your circumstances are bound to change, so your plan should change with the times.
Poor inventory management can hurt a small business in several ways. If you have shortages, you will be unable to provide your customers with the products they want when they want them. This will cause them to look elsewhere, and there is no guarantee you will get them back. For overages, you have the problem of money being tied up in stock that is not being sold.
This is another area where a software solution can help you manage your business. A good inventory management system will tie in with your point of sale system to help you track inventory in real time. Some of these systems can even provide insights to help you order with better accuracy to meet the needs of your customers while not spending on inventory that will not sell.
A Failure to Adapt
It is not uncommon for a small business owner to get set in their ways. This is especially true for a person who has been in business for a while and maybe even seen some success. If certain practices worked for a while, you just assume that they are always going to work for you.
This complacency can cause a small business to fail. The market is bound to change with time. A service or product that may have been popular a few years ago may not have the demand it once did.
Whether you have been in business for a few years or you are just starting out, you need to guard against the assumption that what you are doing now is something that is always going to succeed.
As a small business owner, you should keep an eye out for changes to the market and new trends. Continually gather data concerning the operations of your business and look for ways you could improve.
Missing the Value of Data and Analytics
In the past, small businesses did not have the resources to take advantage of Big Data and analytics. It was something that was exclusive to large corporations. In the modern age of business, several analytics tools are available to small businesses.
With the right tools, you can track data in real time and use analytics to gain insights into the operations of your business. As was previously mentioned, there are inventory systems that can use data to forecast your inventory needs. Along with that, you have marketing platforms that can show you the effectiveness of different campaigns and different types of software that can be used to analyze spending.
When you have this level of information, you can make smart, data-driven decisions about how you run your business. This will help you to maximize every dollar spent and take full advantage of every opportunity to increase profits.
The success of a small business is not something that just happens. Even if you have a good idea, you need to have a complete plan, be a good leader and work every day to steer your business in the right direction. If you can avoid these seven causes of business failure, you can do a lot to ensure the long-term success of your business.
Cover Image credits: Photo by Startup Stock Photos from Pexels