Why do small companies fail? According to a recent study,
over 50% of startups fail in the first year and about 95% of small businesses
fail within first five years. The most common reason for failure is the lack of
business management and entrepreneurial skills or lack of capital or both. The
following list includes some of the reasons why businesses fail along with
advice on what you as a small business owner can do to avert disaster before it
strikes.
1. Lack of Skills:
Your business can fail if you don’t possess good entrepreneurial and business
management skills. From finances to managing resources, poor management can
affect your entire business. Business management includes planning strategies,
organizing things, operating processes, directing others and communicating to
your partners, staff or stakeholders. You need to learn business skills if you
want to avoid failure.
2. Choosing the wrong
business: Depending on whether you are targeting local customers or want to
do business globally, your competitors and customer profiles, it’s important to
choose an industry where you can achieve sustained growth. Even though some of
the best ideas can be turned into a profitable venture, but it takes more than
an idea and passion to make your small business successful. Understand your
competitive marketplace and customers’ buying habit and take up small business
courses online before taking a huge step in the entrepreneurial landscape.
3. Inadequate cash
reserves and cash flow: Generally, it takes at least six months or so
before a business starts making money. So, it’s important to consider both
business and personal living expenses to determine how much cash you need to
run your business. If you fail to determine how much cash reserve you have or
don’t have enough money to start a business, then it is better not to start
one. Positive cash flow is essential for a business to be viable in the long
term. Poor cash management could put your small company out of business within
the first few months. Therefore, it’s critical to understand your cash flow
problems and solve them.
How to avoid business
failure?
Business failure can be painful, especially when it's
inevitable in some form. By identifying the main reasons for which most small
businesses fail, it would be easier for you to avoid them proactively. Here are
the ways to consciously avoid business failure:
• Join business
mentoring programs: Having a business mentor can benefit your startup more
than you think. In such programs, you will find successful business mentors who
have experience in new ventures and have an understanding of the steps needed
to get your new business off the ground. A business mentor will help you make a
business plan, support you through the challenges and enable you to get right
foundations in place for your business.
• Learn Business
Skills: To be a successful businessman, there are four critical skills
you'll need to master including leadership, problem-solving, time management
and organizational skills. Developing these skills can make a difference
between failure and success of your business. How to learn and develop these
skills? Take up small business courses online to sharpen your business acumen
and move forward in a right direction.
Running a business is no easy task. Being aware of common
reasons most small businesses fail can help you proactively avoid them. Take up
business mentoring programs to gain necessary knowledge so that you don’t go
out of business within the first few years of its establishment.
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