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The Main Causes Of Small Business Failure – And How to Avoid Them

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Guides

The Main Causes Of Small Business Failure – And How to Avoid Them

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As any director or leader would attest, setting up a business is by no means an easy feat – especially if it’s an SME. It takes time, skill and hard work to succeed as a company, whatever its size. It’s common, though, for small start-ups to fail – so, why is this?

To find out, why not explore the three main causes, and how to avoid them?

1.      Poor money management

When it comes to business, money is usually everything. If any start-up team – whether large or small – manages its finances poorly, their project stands to fail.

Spend your initial funding too quickly, and there may be little – or perhaps none – left over for critical further investment, such as social media outreach and staff costs.

Though external funding options exist for small start-ups, few lenders provide ongoing financial support and advice for small business owners.

And this, unsurprisingly, can deter small business owners from seeking outside help in the first place. But there are specialists that cater specifically to start-ups, offering business loans and useful financial management tips.

Very often, supportive lenders help SMEs to stay on top of their finances, boosting their chances of success.

2.      Low market demand

Why set up a business in the first place? Ask most company directors, and their answer will be to meet a growing demand – and this makes obvious sense.

If an increasingly high volume of people need a product or a service, they’ll seek a reliable source to buy it from. And this, of course, means less competition and an almost guaranteed profit for businesses of any size. Unsurprisingly, new SMEs that go into an industry with low market often suffer from slow income growth, and in turn fail to achieve success.

It can be particularly beneficial for small firms to enter into a heavily used sector. As they tend to boast fewer team members than larger ones, their profit intake is typically lower.

However, if they’re part of a growing market, they stand a better chance of securing sales and customer retention as soon as they go public.

3.      The wrong location

It may not sound like an obvious reason, but sometimes where a small business is based can affect how likely it is to succeed.

So, why is this? Well, it could be related to the kinds of market demands within a particular area. For example, if an SME sells children’s’ toys in a location that’s home to a low percentage of people under eighteen, it will likely struggle to make a high profit.

And this in turn could impact its overall success. While larger companies tend to have contingency money to fall back on, smaller ones don’t often enjoy this benefit. So, if their leaders invest in the wrong area, it could cause them to fail.

An ONS survey taken in 2017 found that while the North West was the region with the highest number of start-up births, London – somewhat surprisingly – had the highest company death rate in the UK.

This may very well have been caused by a lack of customer demand to meet for start-ups in the capital. Before any SME enters the market, it’s vital to make sure that there’s a high demand for the products or services that it will offer within its location.

A small business can be just – if not more – successful than a large one. If you’re aware of the main mistakes that SME leaders make, you’ll easily be able to avoid them, securing success for yours for years to come.

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The Main Causes Of Small Business Failure – And How to Avoid Them

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