The 9 Most Common Reasons Small Businesses Fail

MAKE MONEY - ENTREPRENEURSHIP
Make sure you have these items taken care of before you launch your new business or it could end up failing before it even starts.
Updated April 11, 2023
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It can be exciting to start a new small business in a field you enjoy or turn a side hustle into your full-time job to make extra money.

But sometimes your plans for success don’t work out, which could lead to closing the business and falling into debt.

So before you start your new small business, make sure you’ve thought about these common reasons that small businesses fail.


You start it for the wrong reasons

maxbelchenko/Adobe team ride chairs in office room cheerfully

It’s important to sit down before you start a business venture to figure out exactly why you want to be a small business owner and what your goals are going forward.

Think about why you’re doing it and what kind of work you expect to put into the process. You may not be in it for the right reasons if you’re just trying to have a good time without any goals or if you just want to do it for someone else and not yourself.

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You don’t have a specific niche

MedRocky/Adobe shiny man icon stands out from the crowd

It can be great to start a business, but what is your business supposed to be the answer to? 

When it comes to your particular market, what customer problem will your business solve? Do you serve unique food or fill a gap for a particular retail store in your area?

If you’re just like everyone else, it might be easy to get lost among other businesses in a similar sector, which can cause you to fail. Before you open your business, figure out what’s going to make you stand out in the crowd.

You don’t have a business plan

Natee Meepian/Adobe businesspeople planning strategy analysis from financial documents

One of the most important things you need at the very start of your small business journey is a business plan.

Start at the very top by describing exactly what your business is going to be. You’ll want to think about goals and steps you need to take in order to reach those goals. 

And it’s important to consider the costs of your new venture, including how much you may need to pay for rent and materials as well as how much you can profit from your business after expenses.


There’s no marketing strategy

AboutLife/Adobe young explorer

If you build it, they will come but only if they know about it. How can people find out about it if you don’t have a marketing strategy?

Marketing can come in many different forms and how you decide to focus your marketing depends on what works best for your business. 

Perhaps traditional billboards might work or maybe you want to use social media. But you need to have a strategy in place to get your advertising in front of the right customers. For your business to thrive, your customers need to be able to find you.

You can’t manage materials

rawpixel.com/Adobe Woman hoarding food during coronavirus pandemic

It’s important to have things in stock to help your business thrive. Perhaps you need to order food on a regular basis or materials to create your products. 

Whatever your process, you need to learn to manage and protect your supply chain. Falling short on materials management could cause delays with your products and discourage customers. 

So factor in any potential orders you need to make to keep your business running and make sure you allow for the amount of time something may need to be shipped to you.

You’re not open to learning

pathdoc/Adobe stubborn young man covering ears

You may know how you want to run your business or you’re an expert in a particular field, but there’s always room to grow.

You should be willing to learn new things that can help you move your business forward. It’s important to learn things like marketing, accounting, or new technology to make your business a success. 

Be willing to hire experts in these areas if you feel that could help you. But turning away from new ideas that could help your business may end up sinking it.


You expand too quickly

elnariz/Adobe stressed businessperson struggling to use cellphone

It may be exciting to see your business location find success and tempting to build on that success, but that doesn’t mean you can simply go for it and expect that same success everywhere.

Instead, consider growing at a more steady rate so you can ensure a stable business plan without spreading your resources — finances, supplies, personnel — too thin and causing issues with your business.

You want to do it all

hin255/Adobe multitasking busy business manager

It’s your business, which is why you plan to have complete control over all of it. But you may want to rethink that strategy if you want to find success.

Remember to reach out to experts who can help you with certain tasks like bookkeeping and accounting or marketing. 

You also may want to hire someone to help with administrative tasks so you can focus on other aspects of making your business boom. And, if you want the business to grow, eventually you’ll have to learn to delegate.

You don’t understand your customers

Alexis Scholtz/peopleimages.com/Adobe young call centre agent looking tired in an office

The most important part of your new business is your customers. After all, they are the ones who will buy your products. But what happens if you haven’t done your research about who your customers are?

Without a clear idea, you could end up renting space in a place that your customers may not frequent or you might be marketing your product in a place where customers won’t see it. 

Or, you may misjudge what customers want. If you can’t find those customers — and find out what they want — you won’t have a successful business.


Bottom line

Rawpixel.com/Adobe cheerful business owners standing with open blackboard

A small business can be a great way to make money and retire early or earn extra money in retirement, but your business (and you) could also fall into debt or even fail if you aren’t careful.

Create a budget and a business plan before you open your new business so you know what your goals and expectations are going forward. 

And remember that running a successful business has many facets. For the business to succeed, you’ll need to consider them all.

Author Details

Jenny Cohen Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.

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