4 Most Common Reason Why Many Small Business Fail


Today GISTNAIJAZONE will let you know that Running a business is not for the faint of heart,Successful business owners must possess the ability to reduce company specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.

While there are a number of small businesses in a broad range of industries that perform well and are continuously profitable, 20% of small businesses fail in the first year, 50% go belly up after five years, and only 33% make it to 10 years or longer.

To safeguard a new or established business, it is necessary to understand what can cause business failure and how each obstacle can be managed or avoided altogether.

The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

1.Marketing Mishaps

Business owners normally fail to prepare for the marketing needs of a company in terms of capital required, prospect reach, and accurate conversion-ratio projections. When companies underestimate the total cost of early marketing campaigns, it can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall.

Because marketing is a crucial aspect of any early-stage business, it is necessary for companies to ensure that they have established realistic budgets for current and future marketing needs.

Having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success.

Businesses that do not understand these aspects of sound marketing strategies are more likely to fail than companies that take the time to create and implement cost-effective, successful campaigns.

2.Ineffective Business Planning

According to business admin,Small businesses often overlook the importance of effective business planning prior to opening their doors.

Business owners who fail to address the needs of the business through a well-laid-out plan before operations begin are setting up their companies for serious challenges.

Similarly, a business that does not regularly review an initial business plan or one that is not prepared to adapt to changes in the market or industry meets potentially obstacles throughout the course of its lifetime to avoid hazard associated with business plans, entrepreneurs should have a solid understanding of their industry and competition before starting a company.

A company’s business model and infrastructure should be established long before products or services are offered to customers, and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.

3.Inadequate Management

Another common reason small businesses fail is a lack of business acumen on the part of the management team or business owner. In some instances, a business owner is the only senior-level person within a company, especially when a business is in its first year or two of operation.

While the owner may have the skills necessary to produce and sell a viable product or service, they often lack the attributes of a strong manager and don’t have the time to successfully oversee other employees.

Without a dedicated management team, a business owner has greater potential to mismanage certain aspects of the business, whether it be finances, hiring, or marketing.

Smart business owners outsource the activities they do not perform well or have little time to successfully carry through. A strong management team is one of the first additions a small business needs to continue operations well into the future. It is important for business owners to feel comfortable with the level of understanding each manager has regarding the business’ operations, current and future employees, and products or services.

4.Financing Hurdles

A reason why small businesses fail is a lack of funding or working capital. In most instances a business owner is intimately aware of how much money is needed to keep operations running on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses, such as rent and utilities; and ensuring that outside vendors are paid on time. However, owners of failing companies are less in tune with how much revenue is generated by sales of products or services.

This disconnect leads to funding shortfalls that can quickly put a small business out of operation,business owners can miss the mark on pricing products and services.

To beat out the competition in highly saturated industries, companies may price a product or service far lower than similar offerings, with the intent to entice new customers.

While the strategy is successful in some cases, businesses that end up closing their doors are those that keep the price of a product or service too low for too long when the costs of production, marketing, and delivery outweigh the revenue generated from new sales, small business have no choice than to shut down.

To help a small business manage common financing hurdles, business owners should first establish a realistic budget for company operations and be willing to provide some capital from their own coffers during the startup or expansion phase,its imperative to research and secure financial option from multiple outlets before the funding is actually necessary. When the time comes to obtain funding, business owners should already have a variety of sources they can tap for capital.

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