Young Upstarts

All about entrepreneurship, intrapreneurship, ideas, innovation, and small business.

Top 5 Reasons Small Businesses Fail

accounting spreadsheet

If you’re a budding entrepreneur, aside from working your way to set off on the right foot, one other thing that you need to think hard about is potential pitfalls that you might encounter along the way. According to Bloomberg, 8 out of 10 startups fail within the first 18 months. That’s 80 percent of all small businesses started in any year. Interestingly, most of these businesses usually start off very well, getting a reliable stream of customers for the first few months and even managing to add a few assets along the way. But by the eighteenth month, 8/10 will have crashed and died never to come back again!

CNBC claims that the number one reason these business go down so fast is because they often run out of cash as soon as they get off. Where does the money go? Unfortunately, even the business owners themselves may not be in a position to explain. A 2013 Global Entrepreneurship Monitor report shows that the ability to raise capital is one of the main reasons. Considering that these start-ups still need finances along the way if they are to become profitable in the long term, cash flow problems can quickly force a promising start-up to shut its doors.

But it’s not just cash, here are five other reasons small businesses fail:

The math just doesn’t work.

small business failure growth

There are thousands of businesses that fail each year because they didn’t have an effective plan. Probably, the entrepreneurs just came up with an idea, got some money to fund it and boom… they launched the product! If there wasn’t sufficient research at the beginning, there is a chance of the product failing to impress consumers which would cause the start-up to flop very quickly.

Out-of-control growth.

A start-up that expands too quickly may also be forced to shut its doors too soon especially if the fast growth stretches the business to its limits. A good example is a business that sees a short-term increase in demand and takes a big loan from the bank. Then all of a sudden the demand plummets and the company starts struggling to make sales. How do they repay the loan?

Operational inefficiencies.

If you check, you’ll find that the most successful companies are also some of the most operationally efficient. These companies not only hire the best talent but continually invest in training their staff members. The reason is simple. The more knowledgeable your staff members, the more productive they become. Unfortunately, start-ups may not be able to afford highly knowledgeable talent in the early days.

A declining market.

The advent of technology changed almost everything about how business is done. Today, everything happens online. A few businesses have struggled to get their voices heard online for one main reason – more powerful competitors. When you’re competing against more established companies that can afford more advertising money and hire the best professionals to handle their day-to-day business, you’re already at a disadvantage.

Poor accounting.

The problem for most startups is that at the beginning, the owner may also be forced to double up as the chief accountant. This can be a huge challenge considering that accounting is quite a technical profession. No wonder tracking and collecting debts is a major issue for these businesses.

This last point is where a debt collection agency such as GGRInc.com can help. Specialized debt collection agencies leave no stone unturned in an attempt to recover the money owed by your debtor. That time you would have wasted chasing down the debtors can then be put into more meaningful use.

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Young Upstarts is a business and technology blog that champions new ideas, innovation and entrepreneurship. It focuses on highlighting young people and small businesses, celebrating their vision and role in changing the world with their ideas, products and services.

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