In the US, there are 30.2 million small businesses that employ nearly half of all Americans and create 60% of all new jobs. They play a critical role in job creation and curbing the surging rate of unemployment. When done right, a startup can flourish to a multi-billion dollar company and command a huge market share.
The prospects of owning a business are exhilarating but I recommend you read through to the end to understand the reasons why businesses fail, and how you can prevent yours from adding to that rather grim statistics.
1. Business Founded on Wrong Reasons
The reason why most startups fail stems from the wrong reasons for starting the business in the first place. Perhaps you’re looking for financial freedom through entrepreneurship. Or, thinking that by having a business you’ll have more time for your personal growth or family.
While every business looks to cash in once and grow, starting your business on the idea of making a lot of money is a wrong foundation that kills many small businesses. This should not be the primary reason why you’re becoming an entrepreneur because successful corporations are founded on clear business plans and years of hard work. The benefits will come.
So, as an entrepreneur what are the ingredients that informs your reasons for starting a business?
- Passion is what drives startups
- Love what you do even without much results
- Your product or services meet a particular need in the market
- You’re determined, perseverance and optimistic
- Learning from mistakes
- Team player and forthcoming to your colleges
2. Business with Poor Management
Another common reason cited to business failure is poor leadership skills and overall management. New business owners often lack the necessary management and leadership skills to handle some of the major business decisions. They don’t know how to solve disputes properly, supervising staff is a problem and even a lack of vision to spear ahead the company.
If you lack management skills and fail to recognize your inadequacies in leadership, the business may fail. To ensure this does not happen, you can enroll yourself in a class to learn the right skills to run a business, hire or outsource work from experienced professionals.
Small businesses that turned to big corporations hire experts and professionals that can create a conducive working environment for increased productivity and company growth. So as a manager or CEO of your business, you need a good eye for competent skills, people who’ll support the company’s vision.
3. Limited Capital and Financial Mismanagement
Small businesses share one thing in common, limited capital. They o lack sufficient funds to operate and grow, thus failing to compete favorably with big corporations. If you are a new business owner and don’t have any financial knowledge of determining proper cash flow to get the business started, you need to consult professionals. Otherwise you risk closing your business soon before it has a chance to peak.
It’s critical to know how much cash flow your business will require, the cost of operation, taxes and other financial obligations. Set clear and realistic financial goals and have a good accounting system to support all your transactions. For a new business, it may take even two years for it to start showing signs of succeeding, so you’ll need adequate capital to sustain the operations throughout this period, cover all the costs from salaries, taxes, rent and other expenses until it starts to break even.
The success of your business — whether you’re just starting or you already have a business running, will depend on the business model, which defines your strategic plan, and proper financial management system that is introduced as soon as the company is launched and maintained as part of the company’s culture. Borrow models from big corporations and entrepreneurs such as Sam Darwish.