Research by the U.S. Bureau of Labor Statistics shows that nearly six in ten businesses shut down within the first four years of operation. While not as calamitous as the 90% failure rate often repeated as fact, the BLS statistics are sobering for anyone tempted to invest their time and personal savings into launching a small business. To avoid becoming a statistic yourself, I have put together the top reasons so many new businesses fail.
1. Lack of Experience. Small business owners have to learn how to carryout all of the tasks required to run a business. This not only includes providing the product or service, but managing finances, selling, advertising and promotion, cleaning and so on. There is a lot of help and advice available. Do not be afraid to ask.
2. Lack of Capital. It takes a long time to establish a new business. Market size is frequently overestimated; running costs are under-estimated. Try to be as accurate as possible and then seek a grant or loan which allows for a contingency amount.
3. Unplanned Expansion. The business may take off quickly; this too can cause problems. If you are providing a service, you may have to keep customers waiting for too long, and they may find alternative suppliers. If a product is being assembled and is in demand, more raw materials will need to be purchased.
More credit may have to be obtained from suppliers, as time will elapse between supplying the product and receiving payment
4. Slack Management. Poor time management and paying too little attention to routine but necessary tasks can cause the downfall of many new businesses. Self-discipline and effective use of time will hopefully avoid this.
5. Credit Problems. Always keep your Bank Manager informed of your financial position. If you know that a cash flow problem is likely in the near future, talk to him/her. It is better to do this early, thus demonstrating that you have control of your business. They will then be able to arrange further overdraft facilities.
6. Wrong Location. The right location is vital for retailers, restaurants and the like. If the customer has to visit you, make sure the premises are accessible. Thorough research and planning should be carried out before deciding upon a location.
7. Too much expenditure on capital assets. Think thin! If there are certain items which could really be sacrificed, then do so. It is not always necessary to buy brand new equipment to start your business. Second-hand goods are (usually)easily obtained and cost a good deal less.
8. Paying yourself too much.
9. Staff Problems. This is a major stumbling-block in both large and small businesses. Employees can be inefficient, disruptive, and can cause other problems. A sound awareness of the techniques involved in hiring staff is necessary.
10. Red Tape. Keep administrative procedures as simple as possible. So much time can be spent upon designing procedures, that productive hours can be lost Decide up on your priorities and stick to them.