Why Small Businesses Fail
When I tell people that I have run a small business for 10 years I almost always get congratulated on lasting that long. My reaction is almost always a bit of embarrassment as I still run a small business and that it isn’t a larger business. Sometimes I think my business has survived despite me running it, not because I have run it.
As part of my business marketing I do a lot of face to face networking, Chamber of Commerce meetings, and generally converse with many other small businesses. Here is my list of five reasons small businesses fail. These are also the five things I would spend more time on if I was starting a small business right now because if I knew then what I know now etc etc.
1. Ownership. Who owns the business? How are the profits going to be distributed and when? Who does the work? Who is the leader? So many businesses start off without really sorting this out. Equal partnerships are a nightmare, uninterested investors are terrible, and hungry investors too keen for a payout are even worse. If you have a one person business you are still not immune, as you might not have all the skills and time required to make your business work.
2. Leadership. This would be my number one if it wasn’t because of so many bad partnerships I have seen, because the manager or CEO or Managing Director really does make or break a business. Without leadership there is no direction and without direction a business goes around in circles.
3. Measurement. I think of a business as an organisation, a machine, a system. To keep a system running you need to measure its outputs, and measure them often. You can then tweak your system and measure again, and see if it improves. Businesses that do not measure the important outputs will more than likely fail and not even know for a while until the creditors are called in.
4. Financial Management. Money is the fuel for your business and the more fuel you have available the better able you are to keep it going. Taking too high a salary too early is a common problem as well as getting some expensive perks you say you deserve. Waiting for the accountant to tell you every few months how you are doing is also a terrible way to manage your finances.
5. Dependency. I have seen so many businesses fail because their main source of revenue dried up, or because one of their customers failed owing them many thousands. Never count on just one revenue stream or just one customer. You can also be too dependent on employees. If you have that superstar sales person and he or she leaves, what will happen?
Here’s an article from Neil Patel at Quicksprout discussing more reasons for failure
Related posts:
- Why Small Manufacturing Businesses Fail
- Want to be Rich? Make a Business worth Buying
- Learning to Fail Fast
- Improving Cash Flow in Retail or Manufacturing Businesses
- What would you do with more cash in your business?
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