5 common reasons new small businesses fail and how to avoid them

Running a business is far from easy, especially as it comes with a variety of risks. Established businesses will already know many of the pitfalls and are far from safe, but for small businesses, the risks are even greater.

One in five small businesses will not make it past their first year, while 50% will not reach their fifth birthdays. It is a cutthroat world in business and only the toughest and best-managed businesses will survive. The rest will suffer because of several reasons and this article highlights some of the most common.

1. They Don’t Invest in a Good Online Presence

One of the most common reasons new small businesses fail is because they do not embrace the internet and the effect it can have on growth. Most people either buy products and services online or do their research on the internet before making a choice.

An excellent website that looks professional, legit, and trustworthy is crucial to any business. This is the first step any new business should take when bringing that business online. The good news is that building a website is no longer as difficult as it once was. Businesses can use website builders such as Wix to create professional, aesthetically pleasing, and functional websites within hours.

Once ready, you just need to purchase a domain, fill up your website with valuable content, and optimise it for the search engines.

2. Financial Issues

Even before the internet was such a powerful business tool, small businesses failed for varying reasons. One reason is a lack of working capital. Most business owners will have a good idea of how much working capital is required to keep business operations going each day. This includes covering salaries and other overheads such as rent and bills. However, there has to be a fine balance of what you’re paying day by day compared to revenue coming in from sales of products and services.

Some businesses run into financial issues because they cannot cover the day-to-day running of the business. So, you either need deep pockets or the ability to make tough decisions. Ideally, you have both.

3. Poor Management

Many small businesses are started by owners that have little previous experience. In a lot of cases, a small business usually just has the owner in a senior management role. If the owner lacks business acumen, they may not have the attributes required to oversee the running of the business aside from coming up with a product and finding ways to sell it. There is so much more required when running a business.

If certain areas are neglected, it can have an effect on others. Without a management team or experience in place to oversee all aspects, a business owner that is trying to do everything could end up becoming too busy, which often results in poor management.

4. Substandard Early Marketing Strategies

Marketing is important for all businesses, whether small or a huge corporation such as Coca Cola or Nike. For small businesses, early marketing is as important as it gets. A lack of marketing at this stage of business’s growth is vital, so poor planning here could cause the premature death of a business.

Often, small businesses underestimate how much yearly marketing costs, and therefore go for substandard strategies that yield poor results. Instead, always make sure you plan your budget to adequately cover all future marketing needs.

5. Unsustainable Growth

While all businesses want to grow, doing so too fast is often a cause for struggles. Building slowly but surely is the best way to go as this does not add pressures to your working capital. The more business you land, the more you need to pay to deliver it. This might end up in business loans and investments which could prove difficult to repay if the current climate suddenly changes.

We never know what is around the corner, so while continually pushing to grow as quickly as possible may feel right, it often works out the opposite. Pick your customers wisely in the beginning and build your business in a steady but safe manner.

The Final Word

Many may suggest that the main reason a small business fails is a lack of sales, and while that is true for some, the above shows that there are many other reasons too. You can avoid most of these just by having a solid plan in place long before you launch your business. Make sure you have everything covered and know exactly what you’re doing. There are a ton of tips available to those looking to start a business, but work on avoiding the above first and foremost.

From your online presence to your marketing, you need to ensure that you have the strategies and funding in place to make a success of it. Get it right and there is a good chance you are one of the 50% that makes it past the first five years. Even then, you need to work hard to ensure your business lasts even longer than that.