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Top Reasons Small Businesses Fail - Mash Bonigala

Guest post by: Mash Bonigala

Article Overview: If you are like most small business owners you will pour your heart and soul along with every last penny into your new small business during the first five years of operation. Unfortunately, for the majority of small business owners their businesses will still fail within five years. Why do so many small businesses fail? And what can a prospective owner do to increase their individual odds?

Top Reasons Small Businesses Fail - Mash Bonigala

If you are like most small business owners you will pour your heart and soul along with every last penny into your new small business during the first five years of operation. Unfortunately, for the majority of small business owners their businesses will still fail within five years. Why do so many small businesses fail? And what can a prospective owner do to increase their individual odds?

Reason #1- Poor capital structure

Many new business owners have an unrealistic view of the amount of capital it takes to start their business and how long it will take to make a real profit. The best way to combat this obstacle is to do very thorough research into other businesses like yours. Know before you apply for SBA loans exactly how much you will need not only to start your business but to keep it operating for the next five years. Plan your own life carefully and have realistic expectations about both your income needs and what you can expect your new business to provide.

Reason #2- Inadequate Business Planning

It is very easy to start a new business on a hope and a dream it is much harder to complete a time consuming detailed business plan. A comprehensive business plan includes many factors including: your financial needs, your marketing and management plans, your competition, and your overall strategy for coming out on top. It also forces you to take a look at the future and the challenges you will surely face during the life of your business.

Reason #3 Bad Locations

In real estate the saying is “location, location, location.” In most businesses the same statement is true. Even if your business does not require premium retail space location can still be an essential factor. For example, having a wholesale warehouse located thirty miles from the closest major freeway could increase transportation costs. If your business does require retail space do not skimp on the lower rent areas as the customer base may be significantly lower.

Reason #4 Overexpansion

When you have a big dream for a new business it is very tempting to start big. It is often much safer and financially feasible to begin smaller and grow only as the growth in your business allows. There are of course exceptions to this suggestion and certain business may only thrive if they have a large enough chunk of the market share. Expansion can be classified as high or low risk. High risk expansion requires large amounts of capital outlay and can be a gamble with the survivability of your business.

Reason #5 Underestimating the Competition

Very few businesses are truly unique and the competition has survived for some reason. So as you step into another business’ market respect for your completion is essential. Consumer loyalty doesn't just happen; you have to earn it. If you don't take care of your customers, your competition will. Watch your competition as closely as you do your own employees.

Every business has unique challenges but every new business will also encounter similar obstacles in surviving to the five year mark. By anticipating and preparing for these obstacles you will increase the odds that your business will fall into the percentage of new small businesses that not only survive but thrive.

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Article Tags: prospective owner, small business owners, small businesses



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