A small business is one that is independently owned and operated, usually with a small number of employees and relatively low revenues. The business owner maintains a concentrated degree of authority.
Small businesses have acted as a base where innovative ideas spring. They dare to implement new processes; this is a risk some big businesses may not be able to afford. The idea of small businesses has helped to curb unemployment, absorbing graduates who have marketable ideas and availing them platforms to become decision makers. Also, the variety that it brings helps to reduce the development of monopolies by larger business setups.
Although small businesses often have a smaller customer base and less capital than larger businesses, they can be just as successful. In fact, many large businesses started out as small businesses. However, not all small businesses are successful. Starting a small business can be a risky proposition with very rewarding experiences but there are also lots of reasons why they are susceptible to failure. These include:
Financial Constraints — This is one of the most basic causes of death for small businesses. Small businesses thrive on sufficient working capital, which helps to sustain the operation level of the business. This means that a low working capital is never good for business. While it is true that there are several funding sources available for small businesses such as bank loans, venture capitalists as well as angel investors, it is also true that some of these businesses do not have the growth trajectory required to access these funds. Without resources to keep the business afloat, the next line of action is usually to fold up.
Lack of Effective and Efficient Business Planning — Before a business sets out, small business owners should have an understanding of their industry. There should be a business plan that elucidates the business goals and objectives, analyzing its strengths, weaknesses, opportunities, threats, needs, competitors as well as marketing strategies. The importance of this cannot be overemphasized as with this, the business won’t lose direction since its purpose will be clearly defined.
Poor Management System — A solid management team with capacities/attributes that can fill in for the inadequacies of the business owner is a major plus for any small business. Failure is almost inevitable for any small business with people who lack managerial knowledge and skills.
Inadequate Marketing Plan — Marketing is a vital part of the initial phase of any business. It is important for any organization to have authentic budget to cater for their marketing need (creating and applying cost effective strategies). When it happens, that organizations do not pay attention to the cost of marketing, securing funds from other aspect of the business to sort it out may take a negative toll on the business.
Not Hiring the Right People — Hiring the wrong persons in a small business is simply a recipe for disaster. No matter how small a business is, having people of like minds around, who care about the company as much as you do, will definitely be one of the best decisions you make. An organization with unskilled and uncommitted employees will hit rock bottom sooner than expected.
Others factors that cause small business to fail includes, but is not limited to, failure to understand customer needs, poor inventory management, too much investment in fixed assets, wrong location and lack of business experiences.
After going through the above, you may be wondering, how do know for a fact that my small business is failing?
Your small business needs urgent attention when:
- There’s an increased number of customers complain about your products/services;
- You’re behind on payments;
- There’s a decline in sales;
- There’s Persistent cash deficit;
- You’re losing your biggest customers, among others
If some how you can picture your business in these situations, don’t panic.
One of the most important aspects of running a successful business is knowing when and how to ask for help. Many small business owners try to do everything themselves, which often leads to burnout and ultimately causing the business to perform worse. Don’t hesitate to seek for professional advice that can help to get your business and team on its feet again.
Running a small business can be a lot of work. In all you do, don’t stop making the right decisions for your small business.
You have questions? Feel free to reach out to me on LinkedIn.