Yes, sometimes circumstances being what they are, failure as far as your business goes is simply unavoidable. You've done all you can and yet you have no choice but to close your doors. However, many companies fail because they make critical mistakes—especially in the first few years. And fortunately, many of these mistakes, if caught early and rectified promptly, can be turned around. In this article, we look at some of the most common reasons why small businesses have to shut their doors—reasons that otherwise could have been avoided.
The Most Common Culprits of Business Failure
In order to protect yourself and your business, you need to understand how to best navigate the waters of your industry and market. By avoiding some of the more common mistakes that entrepreneurs tend to make, you stand a much better chance of seeing your business grow and prosper for years to come.
The Market Itself is Waning
If you happen to get into an industry that is falling off fast, then odds are the chance of longevity as far as your company goes is slim. There are industries out there that simply are not profitable in our current climate. You have to be savvy in terms of doing your research and finding those markets with a dynamic future thus ensuring your business will, in fact, have a chance to grow.
You Haven't Read the Market Correctly
Picking the right market is certainly important, and then you need to have a knack for reading that market. Who are your consumers? What are their needs? Their buying patterns? General behavior? You have to be something of a sleuth here and know what customers want and expect from your business. Analytics can definitely help; not to mention, good old fashioned observation is critical. You want to drive customers to your company and ultimately keep them there.
You're Not Specialized Enough
One major mistake that many small businesses make is to overgeneralize. Trying to spread yourself too thin, selling too diverse an array of products, and you will be in a weaker position to compete. Focus in on those key products/services that people are drawn to; make them of the utmost quality. Finetune your business processes to this end and you will strengthen your foundation.
Management Lacks Experience
You may be a new entrepreneur, and that's certainly fine, but it is crucial that you quickly develop those leadership skills needed to effectively guide your team into the future. Many new business owners have great expectations and yet don't take the time to learn the skills that a true manager actually needs. You have to be able to delegate, for instance, communicate efficiently, nurture talent, among a host of other responsibilities that managers have.
Lack of Proper Accounting
Perhaps you're not the best with bookkeeping; you need to understand this going in and ensure that you have someone, whether internally or outsourced, that can take care of your books, keep you on track and organized as far as the accounting aspect of your business goes. Otherwise, you will sink very quickly.
No Checks and Balances
Everyone needs to know their respective roles, and these need to be detailed on paper. What happens when you fail to define what everyone's position entails is that no one understands what they're supposed to be doing or to whom they're supposed to be listening and thus chaos ensues. Conflict can quickly arise out of this lack of definition in terms of roles and responsibilities.
Poor Customer Service Practices
The customer is the reason you're in business after all and so if you fail to implement solid customer service strategies, you will inevitably falter. If customers have concerns address them, if they have questions answer them promptly. And yes, most of the time go by that old adage that the customer is always right. What's more, you need to invest in training your staff on how to deal with your customers. Regardless of what type of business you have, there needs to be a protocol for dealing with customer complaints.
Team Dynamic is Off
Hiring the right people is essential—hiring the wrong people can most definitely break the back of your company. Furthermore, you want to make sure that as a team they are in sync. One problematic employee can throw off the whole dynamic and consequently cause your business to struggle.
Wrong Location
If yours is a brick and mortar storefront, it needs to be located someplace where people can find it, of course, someplace convenient for your industry needs, and someplace potentially near your target demographic. If you're not visible, or maybe you're located somewhere considered dangerous or even in an area that is already flooded by competitors, then odds are you'll have a hard time sustaining your company.
Legal Mistakes
Beyond the reasons already mentioned, you also want to ensure that legally speaking everything you do is by the book. You'd be surprised at how many entrepreneurs fail to follow the rules and then have to shut their doors. Whether not paying taxes on time (or at all/), failure to protect their intellectual property, even failure to follow the rules of organizing as a business entity can get you in trouble. The best thing to do if you're not sure is to speak to an attorney conversant with your business needs.
No One Wants to See Their Business Fail
And yet no business is immune to failure. The good thing, however, is that so many of these mistakes are avoidable and/or changeable. It all starts with a strong leader who takes the time to properly navigate the commercial waters. Certainly, there can be down times even when you are doing everything that you need to be doing to stay afloat. You have to be prepared for this—preparation can mean the difference between thriving and failing.
At First Union, we want to see your business grow and thrive. We offer many loan options from short term loans to lines of credit that will help keep your business afloat. Call today!