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Six Reasons For Small Businesses Failure

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Let’s face it: almost every neighbourhood has that one storefront that turns into a new business every few months. Maybe it started as a nail salon, then there was a karaoke bar or cafe, and now there is a CBD shop. These new small businesses open and close their doors almost before anyone notices.

Starting your own business is definitely not for the faint of heart. Entrepreneurship is not only extremely time-consuming, but it is also inherently risky. Successful business owners must have the ability to mitigate company-specific risks while bringing a perfect product or service to market at a price that matches consumer demand.

Even though there are a number of small businesses in a wide range of industries that perform well and are consistently profitable, most of them fail within their first three years of operation. To safeguard your new or established company, it is essential to understand why businesses fail. Here are some common reasons why small businesses shut down.

A Poor Pricing Strategy

To beat the competition in very saturated industries and attract new customers, companies can set dramatically lower prices than similar offerings. Although such a strategy is successful in some cases, organisations that ultimately close their doors are those that charge too little for their products or services for far too long. 

Some business owners can miss the mark on pricing their products or services. But when production costs, marketing and delivery outweigh the income received from new sales, the company haы a small choice.

Trying To Do It All Or Hiring Too Many People

It is easy for business owners to be so engaged with their work that it can become obsessive, even if all the evidence indicates it not being a success. Running a company all by yourself may be a recipe for disaster. There will be a lot of ups and downs, many things happen that you don’t expect, and when there is no one else to turn to, you can get into a quandary, which in turn might lead to missed deadlines and unsatisfied customers.

Therefore, delegation is your friend. Whether that means investing in software that reduces workload or hiring some employees, your business will only start making money when you shift some of your responsibilities to other skilled shoulders. At the very least, you should have a professional on-call accountant and/or general assistant to help you maintain your financial records and routine duties, so you can focus on your business. At the same time, hiring too many workers prematurely can drain your cash flow and prevent your company’s ability to invest and grow.

Ineffective Management

In some cases, the business owner is the only senior-level person in the company, particularly when the business is in its first or second year of operation. Therefore, another common reason why small companies fail is the lack of business acumen on the part of a business owner.

While an entrepreneur may have the skills required to create and sell a viable product or service, they usually lack the qualities of a strong manager and the time to successfully supervise your staff. Whether it is hiring or marketing, without a dedicated management team, a business owner is likely to mismanage particular aspects of the company, which can also negatively impact future operations.

Rapid Growth

In business, most of the time, the slow and steady wins the race. Growing too quickly often entails financing on credit, such as a small business loan, which can backfire if your company faces tough times or the market changes.

With the rapid expansion and extension of the brand, business owners tend to take on more business than they can do, leading to depletion of their working capital and lower quality. You and your team are overwhelmed while your product or service is suffering. Instead, think about the ways on how to keep your clients and make them fall in love with your business, as well as how you will repay each business loan. 

Cash Flow Shortages

You have probably known that it is actually hard to make money in a business without spending some money. If you want to take your company to the next level and grow your business successfully, you must be able to invest in growth costs such as advertising, equipment and inventory, to name a few.

Amid the COVID-19 pandemic, the government gave help to small businesses affected by the coronavirus through various financial options. Whether you need to cover wages on a temporary leave of your workers, access finance more quickly to adapt to this ‘new normal’ or kick off a new project, you can apply for financial support, such as Bounce Back Loan System (BBLS), Coronavirus Job Retention Scheme (CJRS), Coronavirus Job Retention Scheme (CJRS), Self-Employment Income Support Scheme (SEISS) or Coronavirus Business Interruption Loan Scheme (CBILS lenders). In fact, the CBILS scheme can provide you with two fast solutions like a hassle-free loan and a flexible revolving credit facility to help you find necessary aid and suitable variant for your business that can help to cope with the crisis.

Borrowing Too Much Money

Sometimes you need to go into debt to ensure you have enough capital to meet the needs of your organisation. Some business owners have the cash to pay out-of-pocket, so loans are considered a smart choice to fund your company.

Most entrepreneurs are a bit overzealous and therefore tend to overestimate their funding needs. The prospect of getting a large sum of money through a business loan definitely sounds tempting. Still, if you don’t prioritise your debt repayments and on-time payments, it becomes more and more difficult to grow operations.

Since many small business owners across all industries report that lack of capital or low cash flow is their biggest obstacle, adding the weight of too much debt makes it even more challenging to make a profit. Consider borrowing only what you need to stay afloat, and never borrow more than you can pay back if the business goes bankrupt.

Andrew Mcaffrey