Starting a Business: 4 Reasons Why Startup Small Businesses Fail
Starting a business is an exciting endeavor that many people would like to do. Not only will it help boost their finances, it will also give them the chance to work for themselves, without having to answer to any bosses. They can set their own rules and work at their own pace.
But starting a business also comes with a risk, and when it fails, the person who will become most affected by it, financially and emotionally, is you. This is precisely why you need to know everything there is to know about starting a business before you venture into one. Among the many things you should be aware of are the reasons why many startup businesses fail. When you know what they are, you can avoid them thus reducing the likelihood of failure. Here are the 5 most common pitfalls of startup businesses:
1. Lack of Planning - Many home businesses are started on impulse. They see a good opportunity and immediately decide to embark on it without really planning how to operate the business, who to target, and what needs to be done to keep the business afloat. Before you start a business, know the following:
- Business profile- what type of business it is and your target market
- Business vision, mission, and values
- Your competitors
- The people you need, if any
- Financial aspects- income statements, balance sheets, cash flow, sales and expense
- Marketing strategies
2. Poor Management - Another reason why businesses fail is the owner’s lack of skills in areas such as production, sales and marketing, recruitment, and finance. When they are not skilled in these areas, it is important that they hire people who can do a better job at this than they do. There are also trainings that specifically target these areas and joining such programs will certainly equip you with the skills you lack, and help avoid problems brought about by poor management skills.
3. Insufficient Cash - Starting a business without enough cash required to open the business and keep it going would spell disaster. It is ideal to have on hand 3x your estimated cost for the business, because estimation may not always be accurate. Plus, you will never know how quickly (or slowly) you can profit so it is best to be protected from possible downturns. When you run out of cash, you would need to borrow money from the bank or other lending institutions. Loans have high interest and you might end up paying more for them than earning money from your business.
4. Losing Focus - Many business owners started with a vision, and this vision was what triggered them to put up a business. For a while, they are passionate and focused, but later on, they start to become de-motivated and are no longer driven to work hard. When this happens, they lose track of their goals and their business stagnate and fail. Business owners must be focused at all times. Even when the business is doing poorly, this should challenge them to work doubly hard so that challenges can be overcome.