Failure of small businesses is one of the most intriguing aspects of entrepreneurship. However, little research has been done in this aspect though several evidences glare everywhere. Every day, new entrepreneurs are born with hopes of making it big in the industry but only few of them actually can make it to an appreciable level. We aren’t just talking about big industries and production facilities. Starting off with a hip hair salon or for that matter a music band could be entrepreneurship. The moment you step into or think about making money out of your expertise or passion, you are turning yourself into an entrepreneur. Now, this change associates itself with several new responsibilities. For further detail, you can go to Simplilearn website free resource article.
Suppose you own a music band. As an entrepreneur or a band manager, you need to think if the targeted audience would like your song. If not, you have to change it (even if you love it) or come up with new marketing antics / promotional procedures that would compel target audience to fall for the song. However, this requires substantial amount of dedication, determination, perseverance and hard work. Statistics suggest that seven out of every ten businesses fail within the first two years of operation (Source.org). If you are starting off with a new business, there are several factors you need to look into. The common reasons why small businesses management frequently fails are:
1. Lack of Experience
Most of us will already be acquainted with the saying “doing what you do well”. This applies best to small businesses. Entrepreneurs must have the experience that is required to handle the challenges of a competitive business environment. Getting a company through the initial stages is the most difficult part of the job.
The Way Out:
If one is looking to dive into entrepreneurship right after graduating, it is a bad idea. It is explicitly advisable for individuals to gain some experience in the field / industry by working under an already existing brand. This will give the right inputs and you would know how things work. Experience is a driving factor and without it, you can lose all your investment without notice.
2. Insufficient Capital
Cash is always a major concern when it comes to starting off with a small business. In today’s economic environment, it is much harder and riskier to pay back a bank loan than to get one approved. Even if you have a good credit score, you may not be allowed to loan enough capital to launch your business to complete operation.
The Way Out:
Make sure you have enough in your bank account to support all the investment that you need. It is better to have you own money than to take a loan. Find out the possible sources of small business finances and the particulars of repayment. When a business is launched, you certainly cannot hold back from necessary investment. There are lots of things like the infrastructure, hiring of man power, acquiring raw materials, marketing, promotion and much more and all of these require money.
3. Poor Location
Location can be a crucial factor in small business management. If you have too much of similar and better competition around or if there is less demand for your services in a particular area, your business is bound to fail. One certainly cannot enough sundresses in Tibet! This is especially true when planning for a brick and mortar establishment.
The Way Out:
There are several locational factors to look into – acceptance and demand for a product, the demographics, average work and lifestyle of the people, presence of competitors, religious factors, traffic conditions, local laws and other things like availability of parking and floor space.
4. Poor inventory management
If you are planning for a business that has a vast product line, it is obvious that some products will have greater demand than others. Many such businesses fear to run low on essentials and as a result spend too much leading to useless draining of working capital and eroding possible profits.
The Way Out:
This is the age of information and it is better to have projections in place. Inventories should be established in a way that it don’t ever fail to meet demands and orders but it also shouldn’t uselessly strain the working capital. If required, start slow and with less products and expand the product line as you get an idea of the demands / sales.
Competition means more options, choices and alternatives for customers. With so much to choose from, pricing plays an insignificant factor and things like brand awareness, customer care, product acceptance, promotional ideas and other things come into play. Competition is a huge barrier to the growth of a small business. Who would care to go to a small retail store if you have a Wallmart Store right beside it?
The Way Out:
One cannot ever deny competition – it is a free world. However, to grow in size, small businesses need to avoid competition as much as possible. This can be achieved by unique products / services, locational advantages, brand name, attractive pricing, innovative promotion, etc.
6. Low Sales
Revenue generation is the ultimate measure of business success. If a small business is not getting enough profits from its investment, it is quite possible that the business is running in a loss. Low sales can occur due to a variety of reasons that might include inferior quality of products and services, overpricing, misreading competition, lack of market understanding, poor sales force and others.
The Way Out:
Errors in judgment is a common issue but small businesses must be ready to change their course of operation anytime they feel that things are not going in a way they should have. Constant monitoring of small business financial activities should be the base of this judgment and allows minimizing loss of investment and credibility.
While nothing can really guarantee the success of a small business management, planning and strategizing makes sure that the risk of a failure is minimized.