Common Causes of Small Business Failure


Not Making a Business Plan

One of the biggest mistakes made by Small Business Owners is – Lack of Planning.  You don’t need a business plan just for outside funding.  Business Planning Process forces you to go through all areas which require careful thinking. Your plan must always be based on realistic assumptions with careful analysis of future scenarios.

Undercapitalization – Running Out Of Money before Revenue Starts Flowing In

Lack of Operating Funds is one of the most common causes of business failure. New Business Owners tend to underestimate costs. At other times, their expectation of business revenues tends to be over optimistic. Simply put – plan for extra cash – you will need it.

Underestimating the Importance of Strategic Planning

Business can face competition from many areas. Business Owners need to have a clear understanding of the Industry, its direction, various market segments and the niche that can represent profitable opportunity. The business must understand all aspects of competition and its offering must score over other alternatives – for the Target Segment.
Many business owners fail to do this hard work – to their peril.

Lack of Financial Analysis & System of Review

Small Business Owners tend to do many things. Financial Analysis and a regular system of review happens to be one of the most neglected areas. Importance of Systems and Processes keeps increasing with business growth.

Lack of Expertise in Critical Areas (& Not Seeking Outside Help)

No individual, however capable, can have expertise in all areas. To compete effectively, Business, on the other hand, needs expertise in Marketing, Selling, Finance, Purchasing, Production, Hiring, Motivating and Managing.  Small Business Owners, unfortunately, fail to recognize the need for outside help.

Incorrect Choice of Business Location

Location, as they say – is everything. For many businesses, location is the difference between success and failure. Customer Convenience, Subsidies, Taxation, Manpower Availability, Cost of Raw Material, Customer Traffic, Ease of Parking, Availability of Electricity, Water, Transportation are all dependent on where your business location is.

Business Expansion without Putting Systems, Processes & Resources in Place

Business expansion is - unfortunately – one of the common causes of business failure. Expansion puts a huge amount of additional stress on SMEs. Apart from Financial & Manpower Resources, the need for Systems & Processes is greatly enhanced when an SME goes on business expansion overdrive.

Lack of Professionally Designed Website

Many opportunities are lost simply because a number of businesses have still not realized the need for a professionally designed website. Websites, perhaps, have now become one of the most important part of customer acquisition process. A carefully designed website can now automate many tasks relating to routine interactions with Prospects, Customers, Suppliers as well as prospective employees. You must take immediate steps if your existing website is not providing you customer leads and is not designed for Smart Phones & Tablets.