The Top 5 Reasons Businesses Fail and How You Can Avoid It

Owning your own business can be both rewarding and challenging. And while some entrepreneurs achieve success virtually overnight, there are others who seem to struggle for years to turn a profit. So what is it that makes some businesses succeed while others fail?

Recent data from the SBA found that approximately 32% of small businesses fail during their first 2 years in operation, about 51% in the first 5 years, and roughly 66% within 10 years. Although the statistics seem daunting, building a successful business that can withstand the test of time is entirely possible by avoiding a few common mistakes. Here are 5 reasons many businesses fail and how you can avoid it.

• Reason 1: Growth/Expansion Problems

How to Avoid It: Success is obviously a great thing, but when it happens quickly it can be confusing for business owners to know exactly how fast and how much they should grow. Don’t allow swift success to cloud your judgement and cause you to make poor decisions leading to overexpansion. But, on the same token, you don’t want to stifle business growth and miss opportunities.

Growing your businesses needs to be done at the right time and the right pace. Instead of making spur-of-the-moment growth decisions, take enough time to do adequate planning and analysis. Scaling successfully requires creating a solid foundation for your business that can support long-term growth. This means having a strong team, securing enough capital, ensuring operations are running seamlessly, having a solid customer base, and establishing consistent policies and procedures.

• Reason 2: Ineffective Leadership

How to Avoid It: With poor leadership comes a multitude of issues that will affect every aspect of a business. Being an effective leader requires strategic thinking, empathy, motivation, encouragement, excellent communication skills, and continuous personal development. If you’re a skilled entrepreneur, but lack experience being a leader you may want to consider cultivating your leadership skills by taking courses, reading books, or finding a mentor.

• Reason 3: Unwillingness to Adapt to Change

How to Avoid It: As we all witnessed with the COVID-19 pandemic, things can change in the blink of an eye. Being an entrepreneur, it’s crucial to adopt an agile mindset and know the importance of pivoting when the need arises…whether it’s a pandemic, economic downturn, or simply a change in the market. Smart business owners discover new opportunities for change and growth in the midst of a challenge or a crisis.

Stay competitive and ahead of the curve by recognizing that the world is ever-changing. Don’t be too rigid or too complacent and always try to explore better ways to serve your customers. Innovation and adaptability are 2 of the major keys to sustained business success.

• Reason 4: Lack of Capital

How to Avoid It: Without adequate capital, your business can’t grow and will have a hard time maintaining day-to-day operations. Sometimes new business owners misjudge the amount of cash necessary to run a business. If your business has a long payment cycle, you may still be profitable while having cash flow problems from waiting a long time to collect on unpaid invoices. This can lead to falling behind on rent and struggling to make payroll.

In order to prevent cash flow problems being the demise of your business, be proactive by securing capital before it’s too late. Consider invoice factoring if you like the idea of getting advance payments on outstanding invoices or a business line of credit which keeps your business running smoothly without any gaps in cash flow. It’s perfect for business owners who want the peace of mind of knowing they have access to available funds at all times.

• Reason 5: Failure to Create Value

How to Avoid It: What is it that makes your company unique and sets you apart from the competition? If you can’t answer this question quickly and concisely, then you should probably take some time to sit down and rethink your value proposition. Figure out what you bring to the table that makes you stand out. You need to be crystal clear on what problems your business solves for your customers and what it is that makes your products or services valuable.

Final Thoughts

Too often, small business owners sacrifice growth and opportunity because they are shut out by big lending companies or are overwhelmed by where to start. Unlike typical lending institutions, SBG Funding is efficient in helping you access financing that is not limited by the same time-consuming, stringent regulations as traditional banks. For more information about how we can help your business grow, click here.