Australian Business Directory

Six Reasons Small Businesses Fail

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Despite the fact that the recession is officially over, many small businesses still find themselves residing on pretty shaky ground. Small business ventures have always been risky but these days, the margin for error is slimmer than ever.

Though there are certainly many ways to sink a small business, here are six of the most common causes of small businesses going under.

Doomed from the Start

If there’s one essential component of small business success, it’s that the numbers must add up.

  • There must be sufficient demand for the product or service.
  • That demand must exist at a price that the business can make a profit from.

If these two points don’t hold up, no amount of marketing, investment or hard work is going to keep the business from going under.

No Financial Cushion

Bad things happen. And during a recession, they tend to happen at the worst possible time. Many small businesses go under for no other reason than that they simply ran out of money.

When you combine a lack of capital, significant debt and a sudden unexpected problem, the result is something that very few small businesses can get out of unscathed. And what’s worse, many such businesses would have been fine if it weren’t for that single unexpected problem.

Over Expansion

Ambition is essential if you want to make it in business but it is possible to have too much. Over expansion is a surprisingly common cause of small business failure. When things are going well and when profits are rising, the urge to expand can become overpowering.

Unfortunately however, just because a business works in one market, that doesn’t mean that it will work in another. And when a small business owner gambles that it will, he occasionally loses everything.

Inefficient Operating Costs

If a small business wants to charge competitive prices, it needs to pay competitive prices for rent, materials and labour. Many small businesses start out on the wrong foot by paying far too much for such essentials.

Other small businesses start out paying competitive prices but then fail to renegotiate terms as the economy changes. Unfortunately, when you pay too much, you have to charge too much and there’s no faster way to lose customers.

Ineffective Marketing Campaigns

It doesn’t matter what you are selling if nobody knows about it. An effective marketing campaign is therefore a vital component of small business success. Unfortunately, it’s also something that many small businesses get wrong.

When you’re operating on a limited marketing budget, getting the most bang for your buck is essential. Small businesses who fail to utilize social media, internet marketing and targeted promotional techniques run the risk of going under before anyone even notices that they’re there.

The Wrong Owner

Finally, sometimes businesses fail simply because the owner couldn’t stop tripping over himself. Successful business ownership requires the ability the listen, the ability to adapt and the ability to accept when you’ve made a mistake.

Not everyone has these attributes and the resulting resistance to change has lead to the premature end of many small businesses. It’s what the customer wants that counts, not what the owner thinks the customer should want.

Tom Hawk is one of the famous commercial lawyers in perth. He loves blogging and his articles are a good source of legal advice for small and big businesses alike.

November 17, 2012 |

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