5 Often Overlooked Reasons Why a Small Business Fails
Business management principles point to reasons why a business fails. However, there are less obvious but equally potent reasons why a Small Business may fail. Find out!
The main purpose of any business is profit. Profit is a measure of business success. Whatever the type and size of a business, there are well known standard business management principles (business plan, location, capital, customer service, book keeping, staffing, publicity, etc.) required for its profitability and sustainability.
Unfortunately, many a small business starter overlooks some of these basic business principles because he or she feels they do not apply to his or her own business; and this could lead to business failure.
Below are some of the less obvious reasons why a Business Startup fails.
1) Failure of a business owner to fully analyze, comprehend and document the cost of production versus the selling price of products and services (basic financials). The difference between the selling price and the production cost must be positive for the business to survive and make profit. Cost of production includes raw materials, rents, power, salaries, maintenance, depreciation, office runs, etc.
2) Going into the wrong business can make you fail. Are you in the right business for you? Do you have the drive? Did you consider your strength/weakness, like/dislike, your mental, emotional and physical abilities, etc.? Are you a round peg in a round hole? Are you are cut-out for the business you're in?
3) Going into business for the wrong reasons can cause failure. Starting a business just because you want to answer "the Boss"; or because you want to escape from the 9-5 workday routine, is a wrong move.
Nurturing a business into profitability is a demanding but highly rewarding task requiring personal sacrifice and long hours of work; and you must be ready to work even harder. Start a business because you have a strong Desire, Purpose, Vision and Mission to accomplish.
4) Plundering a business will cause it to fail. Due to lack of loyalty, employees plunder the business by wasting time, giving low output, and stealing raw materials and finished products.
On the other hand, business owners plunder the business by taking money from the business for non-business purposes - using company funds to cater for social, family and personal expense; taking money from the cashier and not accounting for it, just because you are the boss.
For success, separate your personal expense from business expenditure. Place yourself on a fixed salary and live within it. Grow your business first by re-investing your profits for the first few years, before taking profit.
5) Where is the money? Poor credit management can cause a business to fail. When the operating capital of a business is tied down in debt, out of reach of that business, then there is danger of bankruptcy and failure. Too many debtors and poor re-payment plan can cripple a business.
Stay Smart, Wealthy and Wise!