5 Important Reasons – Why Small Businesses Fail?

Thursday, 27th October , 2016

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The following are the reasons that lead to failure of most small businesses.

1. Insufficient Capital:

Most business owners don’t make an accurate estimate about the capital needed to meet various financial requirements of the business in the beginning. Some of them have unrealistic expectations of incoming revenues from sales and don’t raise an adequate amount of capital for their start-up business.

How to Manage your Finances Efficiently?

Since every business needs time to grow and get into full swing, it is advisable to gather enough funds to cover all costs and avoid situations that may force you to shut down your business.

There is professional accounting software that can help you keep a record of all financial transactions (expenditures and revenues) and also generate profit and loss statements. You can even consult professional financial planning advisors for good financial management.


2. Lack of Business Planning:

A solid, clear-cut and realistic business plan is must for a business to turn into success. A good business plan not only helps to figure out short-term or long-term goals, but also helps create a fine balance between the two.

Planning gives direction to your enthusiasm and channelizes your energy in the direction that would bring success to your business.

How to Get the Perfect B-plan for your Start-Up Business?

The best thing you can do is to hire a business planning consultant to design a roadmap for your business. A good business plan should include description of the business, vision, goals, work force requirements, problems with solutions and keys to ultimate success of the business.


3. Not Understanding The Customer:

Your business is likely to experience a setback if you don’t understand your customers’ wants and needs. For this you need to stay in direct touch with the customers and also ask for their feedback.

Feedback from your customers is a valuable advice that will help you to know whether your product is still capturing the market or requires modifications.

How to get Feedbacks from Customers?

The best thing you can do is to do timely surveys to know what their interests are and figure out changes required in your present products and policies. You can use customer relationship management (CRM) tools to maintain touch with your customers.


4. Not Understanding the Market:

If you want to open a real estate agency, but you ignore the fact that you are in area which is already flooded with agencies, this is like inviting failure on your own.

This is a mistake many start-ups    do. They fail to figure out whether there is a scope to grow in the present market scenario. They are simply blinded by their passion which leads to quick failure of their business.

How to Investigate the Market?

If you are planning to setup a business, you will have to find an unmet need within a market and then work to fill it instead of forcing your services. As a startup, you should work to satisfy a need instead of creating a new one.


5. Over-expansion:

Most business owners think a business is successful only if it expands quickly. And here they fail. The aim of the business should be slow and consistent growth instead of fast and inconsistent results. Overexpansion will only lead to bankruptcy.

How to Avoid Problems with Growth and Expansion?

Even big commercial franchises such as fast-food restaurants study and analyze before they plan to target a new location. So, every startup should also research about local and regional demographics, latest trends, and future scope before you take a step towards the expansion.

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