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Why do small businesses fail?

Do you want to hear a worrying statistic? 50% of businesses fail after five years. Approximately 66% will fail after ten. You don’t want your business to be part of that club. To avoid this scenario, you need to make sure that you are dodging mistakes that cause companies to fail. There are a few issues that you must watch out for here from the way you run and manage your business to how you approach appealing to your customer base. Let’s take each mistake in turn and make sure you have the recipe to succeed in spite of the apparent adversity.

Here are 5 reasons why small businesses fail and how you can avoid making those same mistakes

1) Out Of Control Costs

This is definitely one of the main reasons a business will fail. They build up the costs, even after the first year. When you start your business, you might borrow money from a variety of different sources to cover funding. Little by little the costs grow, and soon it can become completely unmanageable. When you reach this position, it’s already too late. Of course, it may not be loans that cause the problem at all. You might find the energy bills or daily processing expenses are too high as well, and this could be due to an efficient business model. You might even find that the price you are charging is too low compared to the costs to run your business. So, now that we know what the issue is, what can we do about it?

Well, first, look for ways to limit the costs of starting your business. One possibility would be crowdfunding which allows you to rely on people who support your company ideas to front the costs instead. Alternatively, you just need to make sure that each expense you take on does fit into your business budget.

Energy and efficiency issues mean that you need to limit wastage in your business as much as possible. You can do that by investing in the latest technology and keeping your company flexible. You might even want to hire an accountant to make sure that you do stay in the green with your company.

2) Losing Customer Interest

Perhaps when you started your business, you were winning plenty of customers, but now the numbers are starting to dwindle. This will typically be an issue with your value proposition. Instead of leaning towards your company, customers and clients will head to your competition instead. Why is this? You might see very little difference between what you are offering and what your competitors provide. While this might be the case it’s likely they have something you don’t: a unique selling proposition.

A USP is a marketing term and simply means there’s something that you are offering that stands out from the rest. This could be anything from a product that other competitors don’t sell to a super fast turnaround. Getting your USP down from day one is a great way to make sure that your business does stand out to customers on the market.

3) Lack Of Leadership

It’s true to say that anyone can start a business these days, but that doesn’t necessarily mean that anyone should. The problem with having such an accessible market is that people can often start a company with no experience. While some business managers will immediately start to excel in a leadership position, others will struggle. They will find it difficult to handle the most basic responsibilities from supervising staff to making sure everyone is working towards a shared goal. It’s also possible that experience isn’t the problem at all. Perhaps you opened the company as a partnership and now there are two competing views in the office with neither reaching a position where everyone agrees. So, how do you solve an an issue like this?

First, there’s plenty of theories, strategies, and studies related to what makes a good leader in a company. It will be up to you to decide which strategies you want to implement in your business. Training and learning will also be important here too. It’s crucial to understand that when you run a business, you need to invest in training for you as well as members of your staff.

4) Too Much Too Fast

There are two issues with growing a company too fast. The first is the optimistic view. You start a business selling one product, and it’s so popular that demand and thus orders go through the roof reaching a point where your business model is no longer able to cope. In simplest terms, level of supply can’t meet demand. Or the pessimistic view is that you think your company is going to be massively successful and it turns out it isn’t, leaving you with heavy costs and no income to deal with them.

One of the best ways is to make sure that you are keeping track of demand. Analytics can make this easy, and you will be able to immediately see what level of demand different services and products have. You will then be able to scale back or grow your supplies accordingly and correctly measure how much you need to invest in your business model.

You also need to make sure that you are planning for unexpected occurrences. So, you should have a system in place to deal with massive booms in demand. This will typically be a contract with an outsourcing company that you know you can trust to handle excess orders.

5) Not Enough Customers

It might seem like a good idea to rely on a low level of customers. You can certainly avoid the danger of overexpansion by taking this approach. But you do have to be careful because if you focus too much on a small group, you give them a lot of power over your company. Ultimately, this means that they can determine whether your business succeeds or fails. For instance, let’s say that you focus on delivering exceptional service to one, a perhaps fairly large client. They are providing a great level of revenue with multiple orders. But, if they suddenly stop using your service, your business model comes crashing down.

Avoiding this is simply a matter of branching out and diversifying your business model as much as possible. Don’t rely too heavily on the success of one product, service or even one group of clients.

We hope this helps you avoid some of the most common reasons a company fails and ensures you avoid following the path of business owners who have already made these mistakes.

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