Reasons Small Businesses Fail and How to Avoid Them

Employees collaborating in the office"

If you’ve been toying with the idea of starting a business, you’re probably aware already of the fact that a lot of small businesses don’t make it through their first year. It’s true; small businesses are prone to failure, but that doesn’t mean you’re doomed. The key to avoiding failure is to recognize why it happens in the first place.

By knowing potential pitfalls, you can adjust your strategies in a way that safeguards your business. Here are the common reasons small businesses fail and ways you can dodge it.

Starting with unrealistic expectations

Some people want to become entrepreneurs because they want to earn more money. Others feel that if they own a business, it will give them more time with their family. However noble these may be, they’re wrong reasons to start a business—wrong, in the sense that they’re unrealistic expectations that could set you up for failure.

Your drive for starting a business should be more than financial security because as it is, you’ll be making a lot of financial sacrifices not just at the initial stages of your business but along the journey. Once you see such sacrifices as burdens on your financial success, you’ll quickly slip into giving up on the business.

Likewise, more family time is also an unrealistic expectation. The truth is laying the foundations for the business would entail spending long hours in the office or at your store. The bottom line here is check your expectations when starting a business. Make sure you have the right reasons for doing this.

Managing business operations poorly

Business meeting in the conference roomThis includes failing to monitor finances efficiently, partnering with unreliable suppliers, not knowing how to connect with the market and choosing the wrong location. This often stems from the lack of business know-how. While it’s a total myth that you can’t do business without experience, it’s foolishness to take the plunge in the industry without adequate research at least on the aspects of finances, marketing and day-to-day operations.

You should be able to come up with a decent business plan, so you’d be guided on the crucial aspects of your business. Or, you can also take the common route of aspiring entrepreneurs, especially those at the food industry: be a franchisee. When you’re with a parent company, you’re able to take advantage of good training, sound advice from experts themselves and a proven business plan. So, start small with an ice cream kiosk franchise or a pastry shop to test your hand on managing a business.

Not having enough funds

Most newbie entrepreneurs fail to understand cash flow or tend to miscalculate how much money they must have. At the same time, they overestimate profits. As a result, they run into financial troubles along the way that before they even take off, they’d have to close down their stores.

It’s important to know exactly the costs of your business. This doesn’t just involve expenses for starting, but rather for sustaining as well. If you’re going the franchise route, franchisors would be upfront with you on such costs. This will allow you to prepare your funds better.

It’s the reality of the business industry that a lot of starting entrepreneurs fail at their endeavors. But that shouldn’t be your case. Avoid failure by anticipating failure and guarding your business against it.