Within the last decade, more people are starting business than ever before. Starting a business is a lot like riding a new roller coaster. It is as scary as being a first-time parent, but it also leaves a person excited and energized. Unfortunately, this enthusiasm can get ahead of them, and the business ends up suffering in the process. Often, this causes the business to close down. In my years of studying and running a business, I have noticed a few common themes of why many good businesses fail within their first few years.
1. Poor Planning: starting a new business is often exciting. Many people can’t wait to smash the shackles of an employee to be their boss. This is a good motivator; unfortunately, it can also be a hindrance. When someone is enthusiastic about something, they are more likely to jump into the pool head first without looking. What if the pool is empty? This is why planning is essential before starting. Some basic topics to think about before opening a business are what you will do, how you will do it differently than your competitors, who your customers are, whether your target customers even want your product or service, and if there are enough customers to sustain your business in your given area? Creating a business plan is an excellent way to prevent a new business owner from jumping in head first without looking. This will allow someone to really take a good look at their idea to see if it could be a feasible business. A business plan can also give a new business owner a plan from which to work. With this structure, a business would have the best chance of success.
2. Bad accounting practices are the language of business. A small business will not last very long without good accounting practices and controls for several reasons. Accounting allows business leaders to see the health of their business, and this information is often used to make business decisions. If a business owner does not have a clear picture of how the business is running, they can’t be good leaders. Secondly, improper financial reporting can put a business in hot water with governmental regulatory agencies, which can cause the business to be heavily fined or other enforcement actions be levied on the business and leadership. The best way for a small business to prevent accounting errors is to hire a knowledgeable and experienced accountant. With technology today, accountants are easy to find, and they don’t have to work full-time to keep up with a small company’s books. Secondly, the business owner needs to put in some sweat equity and self-learning time. With technology, a lot of free resources are available, such as online videos that will help small business owners obtain at least a basic understanding of accounting practices.
3. Starting a business for the wrong reasons- businesses are started for a plethora of reasons. Some of these reasons have good intentions but are not based on reality. One of these types of reasons is the idea of just opening the doors of a shop and expecting to get rich quickly. That really does not happen. It takes planning, building a presence and reliability, much hard work, and time before a business even starts to see a profit. A small business is like a baby; it needs much attention and care before becoming productive. Another wrong reason is that you won’t have to answer to anyone else. That is not true. If your company has investors, then the investors are the boss. If you take out a loan, you are accountable to the bank. You are also responsible for providing safe and reliable products to your customers. If you want to get into business, it should create a positive change in your industry.
4. Failure to market your products- How successful a business owner is at marketing their brand will determine how quickly their business can profit. A lot of new business owners believe marketing is Just advertising. Marketing is more than just advertising. The basics of marketing are understanding your product, what customers will benefit from the product, and what they will be willing to pay for it. The company will also need to know the common issues within their industry that their clients deal with and then figure out how their product solves the problem. Understanding these basic concepts will help companies use their marketing budget more effectively. One example is that there is a part of town with multiple office parks but no real food places in the area. The employees of the office parks may not have a long enough lunch break to drive across town to get food. An entrepreneur creates a delivery service that will pick up the employee’s orders and deliver them in time for the employees to enjoy their lunch. In this story, the target customers are the employees of the office parks. The common problem that the customer faces is the inability to obtain lunch. The solution is a delivery service that will pick up the customer’s order and deliver it to them. Advertising is just how a company shows prospective customers that a solution to their problems is available. Failure to adequately market a product will guarantee it will fail.
5. Bad management or leadership, like lousy leadership in a military campaign, can cause a significant defeat, and a bad business leader can cause a business to tank. A leader who is not good at leading people will never be able to motivate staff to strive for their best work or be productive. If a business leader is not good at making decisions, the business could miss out on opportunities. A right decision can prevent the business from going down the wrong path and ending in disaster. The best way to prevent this is for a prospective business owner to work in the industry in which they plan on starting a business. This will give the leader some basic knowledge of how to run the business within the industry. Also, investing heavily in professional development to improve leadership skills will significantly enhance a business leader’s prospects.
Starting a business is exciting, but there are risks involved. One way to mitigate these risks is for the business owner to take some time to learn about the five common ways new businesses fail, then take some time to plan and put controls in place to make conducting business a successful venture.