The Top 10 Reasons Why Small Businesses Fail

AllBusiness Editors • December 18, 2018

Why do some businesses succeed when others fail? While it may seem to be a matter of luck, in reality there are common mistakes that kill many small businesses before they ever get off the ground. Give your startup a fighting chance by avoiding these 10 top startup missteps.

  1. Growing too fast: While growth is desirable, overexpansion is a serious error. Wanting to be the first to market with a new product, taking on added overhead, or trying to prove to anxious investors that you’re growing can all spur you to overextend your business financially. Set realistic goals and expand only as needs dictate.
  2. Failing to track your finances: Look at businesses that fail and you’ll find that many of them took on too much debt. Learn to pay strict attention to your finances, and keep careful records of all money coming in and going out.
  3. Overspending: Many new entrepreneurs burn through their startup capital before their cash flow is positive. This often happens because of misconceptions about how business operates. If you’re just starting out, seek out seasoned veterans you can turn to for advice before making big expenditures.
  4. Lack of reserve capital: Be prepared for unexpected increases in the costs of things like utilities, materials, and labor. Make sure you keep enough reserve cash to carry you through tough times and seasonal slowdowns.
  5. Poor choice of location: Don’t let a cheap lease tempt you into choosing the wrong location. Consider competition (how many similar businesses are located nearby?) and accessibility (is the area well served by freeways, public transportation, and foot traffic?).
  6. Poor execution: Poor customer service and overall employee incompetence will quickly sink your business. Make sure your employees place a premium on customer service. Develop systems and processes for how tasks should be accomplished, and create internal controls to monitor them.
  7. An inadequate business plan: A well thought-out business plan forces you to think about the future and the challenges you’ll face. It also forces you to consider your financial needs, your marketing and management plans, your competition, and your overall strategy.
  8. Failing to change with the times: The ability to recognize opportunities and be flexible enough to adapt is crucial to surviving and thriving. Learn how to wear multiple hats, respond nimbly, and develop new areas of expertise.
  9. Ineffective marketing: Customers can’t do business with you if they don’t know you’re there. It doesn’t cost a lot to advertise and promote your business through online marketing, social media, email, local search, and more.
  10. Underestimating the competition: Customer loyalty doesn’t just happen — you have to earn it. Watch your competition and stay one step ahead of them. If you don’t take care of your customers, your competition will.

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