Why Small Businesses Fail

9 Reasons Small Businesses Fail and What to Do About It

Only 20% of new businesses survive past their first year. Only about a third of businesses make it past 10 years. Those are some bleak statistics. But, don’t let that get you down! Let’s take a look at some of the most common reasons small businesses fail and some tips to help you avoid those pitfalls.

1. They Don’t Have a Business Plan

There are definitely people out there who think business plans are outdated.

If you don’t have a business plan, you might be floundering around, trying to make things work on the fly. But, having a business plan can help you focus, figure out what direction you want your company to go in, and figure out how to navigate problems that pop up.

To succeed in your business, create a realistic and adaptable business plan before you start. (If you’ve already started your business, write a business plan now. Or, take out your business plan and update it.)

2. They’re Not Flexible

The business you started yesterday will look a lot different a year from now, five years from now, and especially 10 years from now. Why? Because things change. Your industry will change, technology will change, and trends will change.

If you’re not willing to be flexible, you’ll become a dinosaur in no time. Sure, people love dinosaurs, but no one wants to do business with one.

So, be willing to change directions as your environment changes. That means, treating your trusty business plan as a living, breathing document. Take it out regularly and update it. It also means you should keep a pulse on your industry, market, and technology so you’re not terribly surprised when things change.

3. They Run Out of Money

Starting a business doesn’t have to cost a lot of money, but it definitely can get expensive quickly. If a business doesn’t have enough money in the beginning, it won’t be able to grow.

So, before you start your business, figure out how much you’re actually going to need, then raise, borrow, or invest more than that. After you have enough money, be frugal with it and make it last. You probably don’t really need that $400 desk chair, right?

4. They Pick a Bad Physical Location

If your business has a physical storefront, location is everything. If consumers can’t find you, or if you’re located in a “bad” neighborhood, you won’t get any customers. Without customers, you don’t really have a business.

When you’re shopping for a storefront, don’t just pick something because you can afford it (although, obviously, you have to be able to afford whatever you end up picking). Instead, make sure you’re in an easy to find spot and in an area that your ideal customers already go to.

5. They Don’t Have an Online Presence

Your customers are online. They’re connecting with their friends, looking for recommendations, and even shopping online. If you’re not online, you’re losing out. When someone does a Google search for your company, they expect it to show up.

So, make sure you have some sort of online presence. It doesn’t have to be anything expensive or time consuming – it could be social media pages or a Google My Business website. Just make sure there’s something to see when someone searches for you (and make sure to keep that online presence updated.)

6. They Don’t Listen to Their Customers

Your customers know what they want. If they don’t like something you did, they might go online and complain about you. If you don’t respond to that complaint and take action, you’ll lose customers.

When a customer makes a suggestion or complains about you (online or in person), listen to them. Make sure they know you understand and are sorry. If there’s anything you can do to fix it, fix it!

7. They Don’t Have Enough Inventory (or They Have Too Much Inventory)

Inventory is a double-edged sword – too much of it, and you’re wasting money; not enough of it, and people will start shopping elsewhere.

When you’re purchasing inventory for your business, be very careful to buy just the right amount. Of course, this takes some trial and error to get right, but if you’re listening to your customers, you’ll be able to figure out about how much you need of each item.

8. They’re Not Managing Their Books

A business owner should always know where they stand financially. Too many business owners rely on accountants to keep their books for them. That’s fine, you don’t have to do it yourself, but you should know what’s going on.

Regularly review your financial statements so you know where you stand and can correct any problems before they get too big to fix.

9. They Forget About Their Employees

Your employees keep your business running (hopefully smoothly). If you’re not treating your employees right, they’ll look for a new job and leave you. They might even tell people to stop doing business with you.

So, work hard to build a strong, healthy, and supportive culture for your employees. If they’re well taken care of and feel truly connected to your company, they’ll work hard to help you achieve your goals and stay in business for decades to come.


What are you doing today to help your business be successful tomorrow?