by Brian Sutter, Director of Marketing, Wasp Barcode Technologies
No one wants their business to fail. And yet it happens all the time.
So before you borrow any money, rent space, hire employees, or even tinker around with a logo, get these five things ironed out. They are proven to be the most effective ways to prevent a small business failure.
1. Get proper funding – and manage it well.
You’ve heard this advice before: “Get enough funding for your business.”
But let’s dig a little deeper.
Money is the cause of most business failures – true. However, is it a lack of funding, problems with cash flow, or simply mismanaging money that’s doing the most damage?
According to some research, it’s problems with cash flow.
Other studies have revealed that there may be even more to it than that. A recent survey of 2,000 business owners measured how successful versus unsuccessful business owners answered a series of questions. The study found that 42% of successful owners said they had an excellent relationship with their accountant. Only 27% of owners with failed businesses said the same.
This highlights how important it is to find a good accountant. Interestingly enough, one of our own surveys of small business owners found that accountants are the most important type of professionals a small business has. They even outrank attorneys.
The importance of a business owner’s relationship with their accountant shows how money problems don’t just arise out of nowhere.
Consider another finding of that same study: 58% of successful business owners use some kind of software to manage their finances. Only 14% of unsuccessful owners use any financial software.
So there are two surprising tricks for how to stay in business:
- Use financial software
- Talk to your accountant about it now and then
2. They haven’t tested their market well enough.
42% of business failures happen at least in part because there is “no market need for products or services.”
Ugh. A lot of us have been there. And so we urge you: Always – always – test your market before you launch.
And test it really well. Don’t just do a survey that asks people if they’re interested in your product, and then equate all the “yes” answers as being customers-in-waiting. What people say they’ll do (buy your product) versus what they actually will do (hand over money) are, alas, very different things.
To truly test a business idea, it’s best to make people exchange actual cash. So maybe you try a pop-up store first. Maybe you do a “dry test” where you advertise your product or service, and see how many people call or click through to the order page.
I have always disliked the bait and switch aspect of dry tests, but the reality is, nothing works better to test business ideas. And you have to test business ideas. So do something extra nice for your dry-test customers, but do the dry test anyway.
3. They have no inventory management system, or one that doesn’t work well.
That tip we learned about financial software applies to other parts of your business. Namely, your inventory.
Let’s face it: Inventory is expensive. Warehouse space is expensive. Your employees’ time is expensive. And unhappy customers are more expensive still. The cost of mismanaged inventory adds up.
So don’t mess around. Act like it’s the 21st century and buy and properly set up, reliable inventory software. This saves a huge amount of money over time and often removes the governor on a business’s growth.
It may also put you ahead of the competition. Because most small businesses still don’t use inventory software, and an incredible 83% of them don’t use inventory software that lets them do an inventory audit.
So it’s no wonder that “poor inventory management” is one of the top ten reasons small businesses fail according to the Small Business Administration.
4. They don’t have or can’t find great employees.
Anyone in business knows that finding good employees is tough. Keeping them, even tougher. But it’s the only way to succeed. This is because your employees are the first point of contact your customers have with your business. To your customers, your business is your employees.
So don’t go cheap when you hire employees. Don’t cut corners in interviewing them. Don’t slack off on keeping them trained. Even though finding and keeping great employees is one of the all-time biggest challenges in small business, it’s a challenge you’ll have to take.
5. They don’t invest enough in marketing.
Marketing spending came up in that study of the differences between successful and unsuccessful business owners, too. 49% of successful owners spent money on social media, advertising, and PR. Only 20% of owners of failed businesses did the same.
This caught our attention, because of what we found in our own WASP Barcode 2017 State of Small Business report. Of the more than 1,000 business owners we surveyed, most underfunded their marketing. Specifically, 42% invest 3% of their revenue into marketing activity.
We understand that it can be hard to invest in marketing when money is tight. And the returns on marketing spend can be hard to track, or just take a long time to see. But spend on it anyway. It’ll make you more than twice as likely to succeed.
Back to you.
What do you think causes small businesses to fail? Leave a comment and tell us what you think.
Brain Sutter serves as Wasp Barcode Technologies’ director of marketing, where he sets the strategic direction and oversees the tactical execution of the company’s marketing programs.