It’s sad. 8 out of 10 businesses fail. And many of the causes can be prevented. This list can help you put together a plan to make sure your business is around next year. If you are guilty of any of these, make the necessary changes to get your small business going in the right direction.
These Items May Cause Small Business Failure
Not Keeping a Budget
If you’re not in the habit of running your household with a budget you’re not likely to run your business with one. Mismanagement of funds is hands down one of the number one causes of business failure. You don’t have to do it all yourself. Purchase a copy of Quickbooks and hire a bookkeeper to help.
No Customer Attraction Plan
If your business is not making money, it is likely that you don’t have a proven plan to attract customers. While, marketing and sales are not the same, one is certainly a result of the other. You must make time every week for sales activity, otherwise you could end up with a glorified hobby.
Doing it All Yourself
Imagine a catering business owned by a trained chef. They spend all their time cooking for catering clients, instead working on business strategy, operations and marketing. Read the E-myth, by Michael Gerber. This book will help you build systems around the business and stop thinking that no one can do the work better than you can.
Focusing on the Wrong Thing
Are you spinning your wheels focusing on activities that aren’t driving business? Remember your core function as the business owner is to solve a problem for your customer, and that means create “real value” and then delivering on it. Spending capital on developing graphics and other design elements are important, but only once you have customers. Create your minimum valuable product first.
Not Signing the Checks
Even if you have a bookkeeper or accountant to assist with managing the money, you should always sign the checks. There are countless stories of businesses that ended up with missing funds or unpaid taxes because they were not signing off on how the money was being spent in their business.
It’s hard for a business to survive if the management team can’t see eye-to-eye. Read Built to Last by Jim Collins for strategies that can help build your management team on a solid foundation.
Not Retaining Earnings
Retained earnings are the net money that is kept in the business and not paid out to shareholders. Think of this as your business savings. Have 3-6 months of your payroll and operating expenses in a separate account. Business is cyclical there are ups and downs. You want to be prepared not if – but when – a slow sales season hits.
Not Paying Taxes
You can’t get around paying the IRS. Learn the guidelines for paying your federal taxes on a quarterly basis. Keep in mind that each state also has its own regulation. Know the local laws and tax requirements so you don’t get an audit or unwanted visit from Uncle Sam.
No Unique Value Proposition
There are not a lot of new industries being created, which is more reason why you have to differentiate from the competition. A few years ago when Netflix entered the video market they weren’t developing a new industry, home videos had been around for years. But they were different because they offered direct home delivery and it completely changed the home video business. How are you different from the competition?
Not Incorporating the Business
Depending on your states laws, you can operate as a sole proprietorship. But it’s better to set up your small business as an S-corporation or an LLC. You want to incorporate to protect your personal assets in case a client decides to take you to court. You can read more on how to use the law as a protective shield for your small business.
If you are not a barbershop, hair salon or similar business, a cable bill should not be a part of your monthly expenses. If you’re found to be mixing personal and business funds in the same bank account your business can lose its corporate protections and a debtor could collect against your personal assets. Be sure to pay yourself every month from the business and pay all personal bills from your personal account.
Providing Bad Service
To thrive as a company, you need repeat customers to pay for your products and services. Create a plan to exceed customer expectations and train your staff in your customer service procedures. Remember, it’s easier to keep a current customer than it is to find a new one. Use these tips on avoiding customer service mistakes in business.
Not Closing Sales
If you want to close the business, you have to make the ask. Selling can sometimes be difficult for business owners, but whether it’s effective social media, corporate or direct to consumer, we still have to do it. If you’re still not feeling confident download a free e-book on the Art of Selling.
No Succession Plan
You can’t live forever and your business needs a plan for when you’re ready to retire or move on. Here’s an interview with Keri and Anita Conner who, after a cancer diagnosis, discovered that they had to prepare for a health disaster in their small business. Are you prepared?
Not Watching Your Spending
Don’t overextend your overhead expenses with office rent, equipment leases and long-term contracted services before you’re ready. Carrying too much overhead without having the cash to support it can put anyone out of business. You must watch your spending.
What Do You Believe Causes Small Business Failure?
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