According to research, only about 20% of new businesses make it past the first year and, even if yours does, only about 50% make it past 5 years. There are many reasons small businesses fail and these statistics can be disheartening, whether you are just getting started or you’re an experienced business owner. However, while it’s important to keep these numbers in mind, you shouldn’t let them deter you from pursuing your dream business.
As a small business owner, you want to focus on running your business. This is difficult when you have to also deal with administrative tasks such as accounting. If your small business is located in Southeast Wisconsin, let Nolan Accounting handle the financials of your business.
In this article, we’ll explore some of the common reasons that small businesses fail- and how you can avoid them.
Top 10 Reasons
No market research
When starting a small business, it’s important to take time to research and find out if there is a need for your product/service. Find out everything you can about the current market, future trends, your competitors, and your target audience, as well as their motivation for doing business with you.
No business plan
One of the most important preliminary steps to starting a business is to write out a business plan. This will help you get clear on the direction of your business, define your goals and an action plan to achieve them, and to help you secure funding.
Lack of funding
Funding is critical to start and operate a small business. Unfortunately, most entrepreneurs don’t have the capital to cover these costs or they don’t understand all of the costs involved in small business ownership. When writing your business plan, you should consider all of the fixed and variable costs associated with owning a small business.
Mismanagement of finances
Cash flow, or the money coming into and going out of the business, is critical for the success of any small business. If you don’t understand how to manage cash flow and stay on top of your finances, you may be at risk for failure. You may want to consider delegating this task to an accounting firm that you can trust.
Not promoting the business
A good marketing plan is critical for the success of your business. This will help you acquire new customers, as well as retain your current customers. You must find a good balance between traditional and digital marketing strategies to reach your target audience.
Not knowing competition or customer needs
The best way to build a customer base is to know your target audience and how to best connect with them and learn their needs. In addition, you need to know what your competitors are doing because if they can meet your target customers’ needs better than you, then you’ll lose them.
One of the most important things to remember is that things may not go as planned. You will face challenges as a business owner. Therefore, it’s important to pay attention to what is going on in your business and outside of your business so that you can respond and adapt when needed.
While growth and expansion can be good for your business- it can also lead to failure if done too quickly. It’s important that you understand what you will need for the future growth of your business. Don’t take on too much financing, as it can impact your cash flow. Also, don’t take on too much business, as this can affect the quality of your product/service.
Not hiring/retaining the right staff
You may not be ready to hire people right off. However, when you do reach the point that you need staff, make sure that you attract the right people. You want to build a diverse staff with attitudes and values that align with yours, as well as have complementary skill sets.
Not asking for help
Entrepreneurs face a lot of challenges when it comes to starting a small business, which is why so many of them fail. They feel alone and often just want to give up. However, there are places that you can turn for help. Talk to your local Chamber of Commerce and find a mentor that you can reach out to when you need advice. You may also want to find an online business course or podcast to keep you motivated.
Make Your Small Business Successful
The success or failure of your small business ultimately depends on you and your commitment to the business. If you can keep these top 10 reasons small businesses fail in mind, you can avoid them.
If your small business is in Southeast Wisconsin, let Nolan Accounting help you with your financials. This will allow you to focus on other things to ensure that your business is one of the ones that sustains for many years to come.