Why Most Small Businesses Fail

Why Most Small Businesses Fail (And Tips to Increase the Chances of Success)

According to most sources, nearly half of all small businesses that start will fail within the first year. It’s a frightening statistic; one that makes it easy to question why so many people decide to go into business. However, the lure of financial prosperity, coming up with the “next big thing” and being the boss are too good of thoughts to simply pass up for a lot of people and with good reason. Business ownership can be very rewarding, but in order to “make it”, new business owners should consider why there’s such a high small business failure rate so that they can learn how to avoid it.

Why Most Small Businesses Fail

  • Lack of research and planning
  • Using personal financial resources to start the business
  • Lack of or inadequate business management skills
  • Oversaturated market/business niche

How to Avoid Small Business Failure

Now that you know several of the main reasons behind small business failure, let’s break down each reason to show you a few different ways to avoid becoming another small business statistic.

Lack of Research and Planning

Starting a new small business would be simple if there were no forms to fill out and no laws and regulations to abide by. But the truth is that there is a lot of paperwork and research that needs to be performed to make sure that your new small business adheres to local business laws and regulations. Many new small businesses get caught off guard when they realise or are informed that they did not take the proper steps in either starting or maintaining their business.

Even if all of the right paperwork is in place, other research and planning is still needed. For example, if you want to open an online e-commerce business, but there are already several e-commerce stores which have been open for years and trusted by consumers, it’s going to be difficult to break into that market in most circumstances.

Research and planning is not only helpful, but spending time on it can save you from costly mistakes later on in time. Know who your competition is; know what you need to do and know how much it’s going to cost you. The great thing about today’s business world is that the Internet is available to help you perform much of the research that will benefit your new business adventure.

Using Personal Financial Resources to Start the Business

Using personal financial resources to start a business is a mistake that’s made time and time again. If personal financial resources are used and the business fails, you’re not only putting your business at risk, but you’re also putting your personal finances at risk.

Starting a business costs money and this is another area where good planning can go a long ways. If you know that you want to start a business, financial planning can be of assistance so that you know exactly what you have to do in order to either save or finance your business.

It’s easy to get caught up in the excitement of beginning a new career as a business owner, but it’s often the act of rushing into things that can lead to small business failure. Take time to think things through and get things in order. If you’re having a hard time coming up with the financial backing that is required to start your business, there are several websites online where you get to pitch your startup idea to potential investors. There are options to assist those who want to start new businesses for those who take the time to look and do their research.

Lack of or Inadequate Business Management Skills

Some people have a natural business sense, but for others, the skills needed to run a business effectively need to be acquired through proper training or experience. We’re now in an age where pretty much anyone can set up a website and start an online business. While the Internet provides near endless opportunities, it’s important to remember that whether it’s online or not, it’s still a business and should be treated as such.

If you’ve never managed all aspects of a business, it’s a good idea to incorporate business management training into your pre-business planning. In the initial phases of your business, you may be in charge of everything, which means it’s going to be essential to be trained so that you don’t end up feeling overwhelmed early on.

Oversaturated Market/Business Niche

If you wanted to sell flowers out of a store, you wouldn’t lease store space right next to another flower shop. Doing so wouldn’t make any sense and it would be pretty obvious that the business location wouldn’t be a good one. Yet every day, when it comes to online businesses, people set up new websites and web stores, selling products or services that hundreds or even thousands of websites have already been selling or providing for years.

There are certain industries where there’s room for more than one product seller or service provider, but other smaller niches can easily become oversaturated since the consumer market isn’t very big and the competition is too great.

Before starting any new business, it’s important to find out what competition is out there and if there’s any room for a new business to grow. While it’s a larger problem for small online businesses, this sentiment is true even if you have an offline business. The difference between online and offline situations is that if you’re opening an offline business, you’re generally going to have a better sense of the competition in your local area. With online businesses, it’s going to take a little more time to research and figure out the competition since there’s a good chance that the number of competitors will be greater.

Summary

Starting a new small business is exciting, but so is succeeding at that business. In order to increase the chances of small business success, planning and research can’t be stressed enough. While it won’t guarantee that your new business will be successful, it will provide insight that can help you make better business decisions.

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