According to the Australian Bureau of Statistics, an average of 44 small businesses close their doors each day. That equates to almost six businesses in South-East Queensland closing today, yesterday, tomorrow, and every other day.
What are some of the reasons small businesses fail?
Your business can fail if you display poor management skills. You will struggle as a leader if you struggle to make good management decisions, are inexperienced managing staff, or lack vision.
Dysfunctional leadership in your business will trickle down and affect every aspect of your operation, from financial management to employee morale. Once productivity is hindered, failure looms large on the horizon.
Lack of Uniqueness and Value.
You may have a product or service for which there is strong demand, but your business is still failing. It may be that your approach is mediocre, or you lack a strong value proposition. Do you know what sets your business apart from competitors?
Out of Touch with Customers.
Your business will fail if you do not stay in touch with your customers. What are your customers telling you – are you getting feedback on or off-line that you may need to change?
Unprofitable Business Model.
Are you operating without a business plan, and pursuing a business with no proven revenue stream? The business idea may be good, but failure may come in the implementation of the idea if there are no strategic guidelines in place. A sound business model that incorporates best practices can help your business avoid failure.
Poor Financial Management.
A commonly purported statistic is that 40% of small businesses make a profit, 30% come out even, and the remaining 30% lose money. Whether that stat is right or not, you must know, down to the last cent, where the money in your business is coming from and where it is going, for your business to succeed.
Your business can also fail if you lack a contingency funding plan, a reserve of money you can call upon in the event of a financial crisis. Sometimes people start businesses with a dream of making money but don’t have the skill or interest to manage cash flow, taxes, expenses, and other financial issues. Poor accounting practice puts a business on a path straight to failure.
Rapid Growth and Over-expansion.
Now and then a business startup grows much faster than expected and ends up investing based on forward projections resulting in too much inventory, infrastructure or staff. This can be a pathway to failure.
Business growth and expansion takes as much strategic planning as managing day-to-day operations.
Starting a business requires a clearly defined product or service matched to a strong market demand. Whether you want to start a new business or you are already running a business, you must understand that success depends on careful strategic planning and sound fiscal management, beginning before startup and continuing throughout the life of the business.
If you would like an independent review of your business plan, contact us.