The Main Reasons For Small Business Failure!

Almost half of all small companies fail within the very first two years of operation. The number one reason for organization failure is inadequate preparation. The 2nd reason is under-capitalization.

1. Inadequate Preparation

Inadequate preparation is the number one reason why a small business fails. Before you go into debt funding your organization or mortgaging your house to the hilt, you will need to know if your company is going to do more than merely survive and if it will be good enough to be able to flourish.

The following 3 things show what successful companies (that have been around for 5+ years) have in common:

1. Your Business Concept.

Successful small businesses always begin with a concept.  Their business concept is one that sets them apart from the competition. So what makes a good concept? It is probably a good one if you can say ‘Yes’ to the following questions: 

  • Does your business concept provide a solution or service for a fundamental issue that your target audience has? 
  • Does your business concept satisfy a need or desire? 
  • Does your business concept create a chance for repeat business from your target audience?

The most effective companies solve genuine or perceived issues for their clients, or they increase their clients’ enjoyment. They also create a need for repeat orders for their products and services.

2. The Market Perception. 

Your chances of success are much better if you can answer ‘Yes’ to the following questions: 

  • Is there currently a market for your service or product? 

It is far easier to fill a need rather than developing a completely new market. 

  • Can the market afford your products or services? 

If people can’t afford it, it doesn’t matter how excellent it is, you won’t get their business. 

  • Will people view your product or service as valuable? 

If they desire it, but do not believe it’s worth the price you’re offering it for, you will not get their business.

3. Your Business Acumen.

The following questions are important considerations in order to be successful in business:

  • Do you have the people, the knowledge and the resources? 

Your company needs to be able to be consistent in providing quality services and/or products to its clients or prospects. 

  • Do you have enough workforce? Your company needs to have enough staff to be able to deliver a service in a timely manner.
  • Can you acquire the materials and products you require over time? You need to conduct research to ensure you can continue to source the materials and products you need in order to have an ongoing competitive advantage.

Step One is to have a solid business strategy. Your company plan should be more than a document on “Why we deserve to get funding for our concept”. Do not invest all your time developing a strategic plan, to only let it end up in the bottom drawer of your desk. Your business strategy should be a living roadmap that assists you in making certain you’re on the right path to reach the objectives that you set for your company.


2. Under Capitalisation

The second factor for business failure is being under capitalised.

Make sure your business is getting adequate funding and not being under capitalized. Having adequate capital in order to be able to keep your company afloat is absolutely crucial to your survival.

When forming the financial analysis of your company, make sure that you are not being overly optimistic about what your costs and expenditures may be, so that you offer yourself enough of a cushion in order to not only survive but succeed.

If finding funding is a problem, either due to the fact that you do not have sufficient credit or equity, or that there are other issues, put in the time to look into the resources that may be available in your neighbourhood. There may be a wide variety of grants and loans for business owners, if you understand where to look for them.

A good start would be your Chamber of Commerce, your bank, or government resources which currently offer loans with very low interest or business grants due to COVID.

A business model.

Using other effective businesses as a guide, is a good place to start. Look around when starting out your new business. Find out what businesses are successful and why.

If you’re modelling your business on one that is already successful, you will stand a much better chance of being successful yourself.

Find a coach.

Most small business owners have excellent abilities, but are not ‘jack of all trades’. You may be aware of your strengths and weaknesses, but instead of focusing on your strong points and overlooking your weak areas, find a coach to help you develop your skills where you are weak, or offer guidance in getting what you require.

If you put in the preparation time needed for your business success, you could not only be benefitting future generations but creating a model that other small business owners will follow for their own business success.
Author: Penelope Dower Hunt, director AMG Web Limited Website Designers