15 Things That Could Cause Small Business Failure

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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.

Dysfunctional Management

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.

Co-Mingling Funds

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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13 Reactions
  1. Not having a unique selling proposition is a huge problem I see. Just because you could source a product to China and sell it doesn’t mean you’re going to succeed.

    • Robert– I agree with you no niche or unique selling proposition is a huge issues.
      Ebele — you are correct also. Confidence is 90% of success. You must believe first and others will catch on. David– great point your employees must be bought into the business, or they will sink it.
      Michael once your business fails, you must regroup. If you have any customers left then you can perhaps use those funds to rebuild, or you might need to go back into corporate America to rebuild your finances.
      Ebele– You must ask for the business. I hope my ebook Art of Selling will give you the tools you need.

      Thanks for the feedback.


      • Hi Melinda,

        Yup. Confidence. And I say this through personal experience as someone who has often struggled with it.

        I’ve downloaded the ebook and plan to read it sometime this week.

        Thanks again.

  2. Lack of confidence/lack of belief in applying oneself to achieve what one would like to achieve. I feel that can have a part to play in a small business’s success/failure. I believe confidence is crucial in any business and life in general.

  3. Your employees also need to believe in your product(s). If they don’t, your business will never get off the ground.

  4. Michael Manasseh

    How does one learn the art of creating fresh capital in case bizness takes a plunge?

  5. Reason 12 – Not Closing Sales: there, right there, is a big challenge for me. Always found that difficult. I therefore really really appreciate the ebook.

  6. Above points raised can truly play a spoil sports in giving a business the dimension that one plans to have. I believe providing bad service & no unique value proposition are the main concerns that every business empire needs to look up to & work towards improving them to get desired response from customer.

  7. “Doing it all yourself” is an approach many business owners take. However, it only works for the present moment and doesn’t translate into business growth. Outsourcing back office processes such as bookkeeping and AP/AR allow a business owner to focus on their business’s core competencies, strategy, and growth, rather than day-to-day operational activities.