12 common reasons small businesses fail and how to avoid them

Mommy Perks logoGuest post submitted by Dylan Mazeika

In today’s world, success requires more than just a good idea – a fact that’s exponentially truer for small businesses. Without the capital, brand name recognition and other “big pocket” luxuries often enjoyed by medium to large-sized businesses, small organizations have to operate lean and smart.

Below are a few common reasons small businesses fail.

1. Limited or no cash cushion

Business is cyclical, often enjoying great moments of wild success… and some that aren’t so great. Getting through the lean seasons can be rough on small businesses so it’s important to ensure you have a backup that can supplement financial stress should it occur.

2. Poor brand awareness

Getting your message out there and keeping it out there is one of the key ingredients for a successful venture. But many small businesses fail to include the key component of any branding initiative: using a professional logo maker. One of the most effective ways of getting your business “stuck” in the mind of the consumer is to have a quality logo and brand image. This puts a recognizable face on your small business, effectively representing your unique selling proposition with a few well-chosen words and images.

3. Weakness in operation

The temptation for a business owner is to naturally think their company is the best. But what do the customers think? And more importantly, where are you falling short? Every business can’t be above average on every element of operation. So find out where your strengths and weaknesses lie. Failure to do so can quickly throw the doors wide open to a competitor.

4. Organizational inefficiencies

When you pay too much for rent, utilities, services, labor or raw materials, your profitability will obviously suffer. Negotiating for lower rates isn’t fun and can often lead to the necessity of having to find another vendor. But it’s worth it. Failure to do so can leave you highly uncompetitive in the level of service and price you’re able to offer customers.

5. Dysfunctional management

When your management team isn’t connected or working together effectively, the results will be mediocre at best – a situation that applies equally to your partners or board of directors. Make sure everyone is on board with the company’s direction, vision, mission and standards.

6. No plan for succession

Who takes over when you’re ready to retire? Many small business owners want to keep the business they’ve built in the family, not only to preserve their legacy but also their source of retirement income. But without a solid succession plan, you risk power struggles and, even worse, a lack of interest among the upcoming generation. Make sure you know where your company is headed and who will be taking the reins well in advance.

7. Decline in market

Often unavoidable but easily compensated for, changes in technology and consumer preferences lead to sometimes drastic swings within an industry – the music business and newspaper publishing being two prime examples. Make sure you’re positioned to take advantage of the latest technologies, marketing, and distribution methods related to your line of business.

8. Not enough capital

Inefficiencies in this area are all-too-common and quite often a fatal mistake for small businesses. Make sure you provide an accurate estimate of funds required not just to get going but to sustain operation (even slightly overestimating when possible). Keep in mind, a new venture could take 1 to 2 years to begin achieving profitability, during which time you’ll have to be able to cover the cost of all operational expenses.

9. Poor location

An accessible location is critical to the success of your business. But a lot more goes in the concept of “accessible” than many people realize, including traffic, parking, lighting, condition and appearance of the building, proximity of competitors, and even the receptiveness and acceptance of the local community. Problems with anything on the list (not to mention a combination of more than one) and you have a real disincentive related to your location.

10. Shortage of planning

Like a well-orchestrated symphony, a lot of strategic planning goes into a successful business. And without it, your venture could be short-lived. Start by having a business plan that contains vision, goals, work force requirements, market problems and solutions, projected income statements, cash flow needs, competitive analysis, and similar data that enable you to plan ahead and respond to shifts successfully.

11. Low sales

An endless number of factors contribute to this situation: poor marketing communication, lack of brand retention or preference, market shifts and consumer tastes, to name just a few. Some you can influence, others you can’t. The temptation many struggling businesses fall into at this stage is to discount their goods and services. But this is a mistake as it diminishes their perceived value for the future. Instead, create value-added packages or set up joint ventures with businesses offering complementary goods and services.

12. Unexpected growth

This may seem like something that should be in the ‘plus’ column, but unexpected growth is often considered to be one of the leading causes of bankruptcy and business failure. Keep your eye on two key metrics: an inability to maintain the quality of your orders and service requests and a steady failure to meet production demands. As a general rule, growing your business slow and steady is the ideal, identifying exactly who and what you need to successfully operate at the next stage.

The best (and most cost-effective) way to figure out what NOT to do is by learning from the mistakes of others. So these 12 key things to avoid when setting up your small business should give you a good start going forward.

Do you have any other tips or business experiences? Share them here!

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Author Bio:

Dylan Mazeika is an online writer with a background in marketing and small business. He enjoys writing articles and guest posts on the latest business and design trends, and helping small business owners with professional logo maker tools.

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