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Top 8 Reasons Why Small Business Fail

When you have a great idea for a business, the last thing you think about is failing, but with the wrong preparation you may end up like the majority that don’t survive their first years.

Nowadays, more than 70% of small businesses in America fail before the tenth year. These numbers may be discouraging, but the only way to better prepare for it is to reduce risks and avoid common mistakes.

Top 8 Reasons Why Small Business Fail
Photo by Xavier Sotomayor on Unsplash

Considering that 99.7% of businesses in America are small business, their importance for society and the economy is made crucial to keep things working in the best way possible. There are many reasons why a small business endeavor may fail, like bad communication between employer and employee. So, make sure you’re all on the same page with the direction you want the company to go.

For example, if you are thinking of technological advances for the future, your employees should be made aware so they can adapt to changes.

Also, be wary of communication between business and customer, or just bad planning.

Below, you will find the most common reasons why small businesses are failing around the world.

Lack of Research

Most people aren’t ready to have their own business. They think that because they had a good business idea they don’t need to research the market, the customers, or even if their product solves a problem.

They basically don’t research anything or at least not enough. So, the best and most obvious way to avoid this is to research everything that is crucial to your business success, so you can better prepare yourself to succeed in this tough, competitive market.

Research is the first step you have to take after you have a business idea. When you do that, you’ll be ready for the next steps.


Here’s the second reason why a small business will fail. In today’s crowded world, you can’t go by the old adage, “If you build it, they will come”. You need to get the attention of the customer, and then convince them that they have to choose your business over every other option they have.

So, it’s not enough to have a great product or service, you need to know how to get to the customer and communicate with them. So, from the start, you have to have a marketing plan that will set you apart from everyone else that’s doing something similar to you.

It’s not enough to be the best, you have to convince the customer you are the best.

Wrong Location

This is almost as much true to businesses that have an online location as it is for those that have a physical location.

For those that have a physical location, you have to research the area where you’re opening your brick and mortar business. How far away is it from the nearest competitor? How many people are walking by per day, and is your target customer part of these group of people?

For an online business, location is a different thing, but it’s still something important. What’s your website? Are you on the right social media platforms? For example, young people left Facebook for Instagram, so that may be something to consider depending on your target audience.

Wrong Reasons

If you want to start a business because someone is making a lot of money in that same niche, or because someone wants you to or told you to, then you’re starting a business for the wrong reasons.

This is perhaps, the surest way to fail. The reason you have to start your business is that is something that you’re passionate about it and you have the right skill set.

If you start a plumbing business just because you are a plumber, you may be in trouble. You need certain skills in order to stay in business that goes beyond having the skill set for the service, like finance and management knowledge, which leads to next reason.

Poor Management

Management skills are the most important skill when you’re starting a new business. You need to know how to manage the finance, the people, and everything else involved with your product or service.

You have to know how to keep track of inventory, and customer service. The best way to fix this is to educate yourself about business management or hire someone else to do the job for you.

Most businesses that declare bankruptcy do so because of poor management. This happens because the owner doesn’t have the skills to manage the cash flow and often times uses their personal finances to pay the business’s bills.

Not Enough Capital

When starting a new business, you’ll need money for inventory, a location, web presence, employees, marketing, and a ton of other stuff. This is why you have to know all the possible costs you’re going to have not only now but in the near future.

A successful small business owner not only knows how to work with the capital that she/he has but also knows to foresee possible issues that may use up all of this capital, which will give financial problems in the future.

Expanding Too Quickly And Not Delegating

We’re all eager to start a business once we have the idea and also to see how it will grow and succeed. But sometimes we may have problems if we don’t do things at the right time and analyze everything carefully.

This is what happens when a small business expands too quickly. The owner has to make sure that the business and the owner is ready to make the change.

First, the business has to be ready for the expansion like analyzing the financial health, the market demand, and the capacity of production.

Second, the owner has to be ready to expand the business and that passes through delegation of functions. If you are the kind of person who thinks that things only get done if you’re the one doing it, then you’re going to have to change that mindset to be ready to get bigger.

One way to help this is to invest in software to streamline workflow. There are a number of administrative tasks that can be shored up easily with automation tools. Simple tasks in marketing, invoicing, project management, data backup, and more can be cut down by using tools appropriate for your targeted industry.

Not Having The Right Team

This is one of the most overlooked reasons for a small business failure. You need the right people to succeed. This means people with the right mindset, the right skills, and the willingness to make it work.

So, it won’t work if you hire people based on your personal relationship with them, instead of their qualifications. You need competent workers, not friends.

It may sound harsh, but oftentimes people hire a friend or family member solely based on their relationship even though the person has no place in having that position within the company.

So, hire people based on how good they are in what they do, or at least, in how willing they’re to work to get there.

Avoid Common Pitfalls

After seeing all the reasons why small businesses fail, it gets easier to identify these problems within your business and avoid them in the future.

The best way to succeed is to prepare yourself and avoid common pitfalls before they happen, rather than to have to constantly be fixing avoidable problems.

Top 8 Reasons Why Small Business Fail

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