Seven reasons why new small businesses can fail

It has been estimated that up to one out of every three new small businesses fail within their first two years of start-up. What are the most common reasons for this?

More often than not, it is due to a lack of research and inadequate preparation, that can lead to the selection of a business that is not sufficiently profitable. Not enough facts and too many assumptions, and typically these assumptions prove to have been overly-optimistic.

Common small business pitfalls 

  1. Lack of a long-term plan with unclear goals and objectives
  2. Not properly understanding the buying habits of their customers and what customers really want
  3. Failing to properly evaluate the strengths of the competition – which can result in incorrect pricing of the product and where the business is “positioned” in the market
  4. Over-estimating revenue projections and under-estimating the operating expenses required to run the business
  5. Failure to manage cash flow and neglecting to maintain adequate capital reserves to get through lean times
  6. Operational procedures and systems that are inefficient and not properly documented
  7. Inability to adapt to a changing business environment, caused by the entrance of new competition or by existing competitors changing their marketing strategies

Good preparation and training will help you avoid the pitfalls

Most of these small business pitfalls can be avoided through ensuring that you undertake effective training in business management skills and also perhaps consider finding yourself a good experienced business mentor / advisor.

If a way can be found to avoid these seven business pitfalls, then another eventual challenge for the business founder becomes learning to let go of some of the business operational details.

As the business grows, the owner must learn to rely upon trusted employees who can take on more responsibility for the running and future expansion of the business. For more specific tips on how to do this, see Management of Staff

This can be much like a parent learning to allow their children more autonomy and independence as they mature. It is not easy, but offers the prospect of the reward of having created something that is able to “stand-alone” and a different type of satisfaction.

Take a look at E-Myth for some other insights into causes of small business failure and how it can be avoided.  And don’t forget to check out our blog for some further great tips on managing your small business

A common source of stress for new small business owners can be cash flow strains. Take a look at this short video that offers 3 simple tips on how to manage cash flow, just in case this is something that you are wanting some help with ……

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