The Top 10 Reasons Why Small Businesses Fail

Why do some businesses succeed when others fail? While it seems to be a matter of luck, the reality is that there are common mistakes that kill many small businesses before they get out of their way. The list below will give your startup a fighting chance by avoiding these 10 top startup missteps:

  1. Low sales: there is not enough demand for your product/service at a certain price that makes profits for the company.
  2. Over-expansion: while growth is desirable, over-expansion is a serious error. Moving into markets that are not as profitable in order to be the first to market with a new product, trying to prove to anxious investors that you’re growing or borrowing too much money in an attempt to keep growth at a particular rate can all spur you to over-extend your business financially. Try to set realistic goals and expand only as needs dictate. Sometimes less is more.
  3. Poor track of your finances: you cannot control your business with bad numbers or no numbers. Learn to pay strict attention to your accounting and keep careful records of all the money coming in and going out.
  4. Insufficient capital: be prepared for unexpected circumstances such as the loss of an important customer or a critical employee or the arrival of a new competitor that can stress your finances. Make sure to keep enough reserve cash to carry you through tough times and seasonal slowdowns.
  5. Operational mediocrity: repeat and referral business is critical for most businesses. 
  6. Operational inefficiency: many entrepreneurs burn through their startup capital before their cash flow is positive, which often happens because of misconceptions about how business operates. The ability to negotiate terms that are reflective of today’s economy is crucial to surviving and thriving.
  7. Poor management: poor customer service and overall employee incompetence and lack of focus, vision, planning and standards will quickly sink your business. Make sure your employees place a premium on customer service.
  8. Lack of a business plan:  a well thought-out business plan forces you to think about the future, the challenges, your financial needs, your marketing and management plans, your competition and your overall strategy. These are the reasons why many family businesses do not make it to the next generation.
  9. Underestimating the competition: customer loyalty doesn’t just happen, you have to earn it. Watch your competition and stay one step ahead of them. If you don’t take care of your customers, your competitors will.
  10. Owners in complete denial: owners may be stubborn, risk adverse or conflict adverse but if they cannot be realistic, their business will never go to get anywhere.

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