As a small business owner, you probably know that you’re working against the odds. In fact, half of all small businesses fail at some point during their first five years, and failure rates are highest during the first two years in business. Growing companies face unique challenges that larger businesses don’t always have to consider.
If you’re serious about achieving sustainable growth for your small business, and before applying for a small business loan, you need to understand some of the key factors that lead new companies to fail. This article will cover a few of the most common reasons why small businesses fail along with effective ways to avoid them.
Administrative Costs
Most small business owners have a great idea, but they often focus on long-term goals rather than the details involved in achieving them. Overhead is often a major expense for businesses in their first five years, and ineffective management of these costs can result in failure.
Accounting, for example, probably isn’t what you had in mind when you started your company, but you’ll still need to budget for it and identify the best solutions. Depending on the size of your business, it may be more efficient to hire a full-time employee or outsource this and other tasks to freelancers or subscription-based services.
Small business owners often try to do everything on their own to save money, but it’s usually more efficient to delegate at least some tasks. If you’ve never worked in accounting, you should pay a professional rather than trying to manage it yourself.
Over expansion
Every small business owner wants to grow their company as quickly as possible, but over expansion is actually one of the leading causes of small business failure. It’s important to take each step carefully to avoid putting yourself in a difficult situation later on.
Taking on more clients, for example, seems like a great way to grow your business. That said, spreading your capital too thin will have a negative effect on cash flow, and it’s easy to fall behind when your team has to take on more volume. It will be easier to add new clients later on once you’re working at a larger scale.
Failure to Adapt
Business practices are constantly changing, and things have been shifting more quickly than ever over the last few years. Small business owners who aren’t willing to adjust their own approach will likely be left behind.
Review websites like Yelp, for example, can have a surprising impact on sales, and a strong online presence is critical for nearly every business. Social media, email, and other marketing channels should be top priorities from the early stages of business development.
Small businesses fail for a wide variety of reasons, but these three factors are responsible for a large number of failures. Keep these ideas in mind to avoid making some common mistakes that could prevent your company from achieving its full potential.
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