- Updated: 4 December 2020
Running a business is not easy. It is full of risks and is not for the faint of heart. Business owners must have the ability to bring a product or service to market at a price acceptable to the customers. While several small businesses in a broad range of industries perform well and are continuously profitable, many fail as well.
So, to safeguard a new business, it is necessary to know what can cause a small business to fail, and with that find out ways to improve its chances of success.
1. Starting for the wrong reasons.
I have often heard the following reasons given for starting a business:
“I have always wanted to start my own business”,
“I hate my job”,
“There is no future in being an employee” and
“I should be working for myself”.
Unfortunately, these are not appropriate reasons for starting a business. There must be passion followed by a willingness to pick up skills to run a business.
2. Lack of capital or funding
Running out of money is always the biggest risk to the business. The investment does not stop at capital expenditure. Operating expenditure has to be fully budgeted. Backup plans have to been made in case of delayed payments from customers, short credit terms given by suppliers and for any sudden downturns in business.
Some businesses have experienced insolvency because of the business owners expanding their businesses beyond their ability or capacity. The desire to take up many orders rapidly is strong among new business owners and this may lead to overtrading. This will lead to a strain on their resources, especially their cash flows.
3. Poor management and leadership
Running a business requires management and leadership skills. Working knowledge of the technical skills related to different functions in a business, like finance, marketing, operations etc. have to be picked up along the way.
Small business owners seek to do everything themselves and are not willing to delegate routine work or busywork. The thinking is usually along the lines of “Nobody can do this better than me”, “You will take too long to do this”, or “If you want something done right, you have to do it yourself”. As a result, the business owner will be overwhelmed and be burnt out very quickly.
Routine tasks should be delegated and the business owner would be better off concentrating on decision making, business development and steering the business to the set goals and targets.
4. Faulty business model
Small businesses often overlook the importance of effective business planning prior to commencing operations.
- A clear description of the business
- A list of potential opportunities and threats to the business, inclusive of an analysis of potential competitors.
- Master budget with all the various departmental budgets, inclusive of a capital expenditure budget, staffing plan, working capital requirements and Cash flows projections
- A marketing plan
The business model should be established long before products are offered to customers. Revenue streams should be realistically projected well in advance. A sense check of the business model goes a long way.
A sound business model, sufficient funding and the required management skills for success, will be required to meet strong competition.
5. Marketing mishaps
Business owners have at times neglected to consider the marketing needs of the business in terms of:
- The investment involved,
- the target market segment,
- the timing of the campaigns and
- Accurate projections for the marketing conversion ratio, the Return on Investment (ROI).
The total cost of the marketing campaigns may at times be underestimated. To mitigate any mishaps, realistic marketing effective budgets have to be setup and incorporated into the business plan.
End
The critical thing to remember for you business owners, is that you are in the driving seat, choosing the route, and setting the speed.
The environment may change but you get to adjust anything that makes the journey comfortable for you.
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