Common Reasons Why Small Businesses Fail
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That’s the number of small businesses that fail within their first year.
That’s how many small businesses have to stop their operations within the first three years.
But unfortunately, surviving the first three years doesn’t mean you’re out of the woods yet.
In fact, 95% of small businesses will have to close shop before celebrating their fifth anniversary.
Now, these stats are daunting, but not inevitable.
These businesses all have something in common; they made fatal mistakes. And while certain unexpected events such as sudden illness are unavoidable, other mistakes can be avoided with the appropriate preparation and planning.
So to help you avoid making the same mistakes as these businesses, here are three of the most common reasons small businesses fail.
Reasons Why Small Businesses Fail
According to a study led by the University of Technology Sydney, the number one reason why small businesses fail is financial mismanagement.
Not being able to manage your cash flow properly and keep up with your financial responsibilities because you lack business experience or don’t have an adequate budget framework could be fatal to your company. As a result, cash flow management should be one of the priorities.
The good news is that these days, you can easily develop or sharpen your accounting and financial skills with an online course.
Note that within the ‘’financial mismanagement’’ reason, lack of funding is the most significant contributor to Australian small businesses' failure.
Poor Sales & Marketing Strategy
Unfortunately, many start-ups believe that their products or services are so good that their company will gain traction as they go, failing to craft a detailed sales and marketing plan.
But this couldn’t be further from the truth. In this day and age, if you want to cut through the noise and grab your target audience’s attention, you need a well-rounded sales and marketing strategy.
A detailed marketing plan will allow you to:
- Identify your target market
- Understand your audience’s pain points and language
- Learn what makes your ideal customer tick
- Find out where to reach your target market
- Understand how to create content that resonates with your prospective customers and prompts them to buy your products or services.
Also, a marketing plan acts as a roadmap to ensure that you stay consistent with your content strategy and stick to your budget.
If you want to grow your marketing & sales efforts be sure to check out these articles:
- 3 powerful sales tips to grow your business
- How to set up your first Facebook Ad
- How to set up your first TikTok Ad
- How to set up your first Google Ad
Failing To Adapt
As a small business owner, you’ll most likely have to overcome challenges along your entrepreneurial journey.
And that’s ok. It’s part of the game.
But if you want to ensure the success of your business, it’s important to keep abreast of change and be ready to respond to any challenge quickly.
Whether economic conditions suddenly change due to unexpected events like the COVID-19 pandemic or an increase in interest rates, industry trends, and consumer needs evolve, or you hire the wrong person for the job, you need to show resilience and take a solution-based approach.
Fail to adapt, and you might join the many small businesses that go bust due to a lack of responsiveness and flexibility.
Increase Your Chances Of Success With Business Insurance
If your business is filling a need and you have the drive and determination to make this adventure successful, you’re halfway there. Be resilient and positive, believe in yourself and be ready to face challenges along the way. As John C. Maxwell once said, ‘’the road to success is long and uphill’’!
And while you can’t protect your business against changing consumer needs or economic conditions, you can protect it against costly claims that might negatively impact your cash flow and reputation with business insurance. At upcover, we’ve created a free instant quote generator where you can get an estimate on market-leading business insurance in seconds. Simply enter your occupation and expected revenue to get started!