How To Prevent Small Business Failure (Updated)


This article shows you how to prevent small business failure:

  • Choice of business idea.
  • Wrong business location.
  • Inadequate Capital.
  • Poor planning.
  • Insufficient marketing.
  • Your offerings.
  • Not researching customers/market.
  • High operating costs. – cheap sources of supplies
  • Poor business processes.
  • Not doing enough marketing
  • Poor Customer service.
  • Lack of records keeping.

Research findings have found that one of every five new businesses fail before their fifth year of startup.

This article seeks to identify the most common causes of small business failure. They include one or a combination of the following, among others:

Business Failure: Wrong Choice Of Business

Wrong choice of business is one of the main causes of small business failure. It can even make an otherwise profitable business to fail. It is possible that when you started your small business you made a wrong choice.

Therefore, if you went into a business for which you are not equipped to do, chances are that your business could fail. As a way out of the problem, you should review your choice of business to find out if you made the right right choice in the first place.

After reviewing your choice and you find that you made a mistake, you should consider looking for another business to put your money.

Wrong Business Location

Wrong business location can make your business to fail. For example, if you locate your business where there are no good access road, security and infrastructure, you will not get customers to keep you in business.

Therefore, you should take a hard look at the present location of your business. If you are satisfied that the location made sense, you should remain there.

However, if you discover that the location is not suitable for your kind of business, you should consider relocating to another place to save your capital from going down the drain.

Business failure Insufficient Startup Capital

Another factor that could result in the failure of your business is insufficient capital. For instance, if you are doing business with insufficient capital, you are likely to have the following problems:

  • Inability to meet customers’ needs
  • Poor customer retention
  • Missed business opportunities
  • inability to take advantage of seasonal business
  • Suppliers will be unwilling to grant you credit lines
  • You cannot make or keep promises and lots more

Therefore, if the threat to your business is insufficient capital, you should find ways to boost your business capital. You can look for soft loans from family, friends and associates. But you should not borrow money to run your business because of the high interest rates charged by lenders.

Not Reducing Business Expenses

Have you taken the pain to take a hard look at your various business expenses? For example, if your business is carrying high operating costs, your business might operate at loss. This is because high overhead costs reduce your profits. And this is not good for your business.

You should take a hard look at all your business expenses to determine those that you need to prune down or even weed out outright.

The best place to identify those cost items that are eating deep into your profit margins is the profit and loss account.

Therefore, you should ensure that your prepare annual accounts for your small business.   Annual accounts for your business should enable you to know whether or not your business is doing well.

Business failure: Poor Business Plan

Poor business plan can lead to the failure of your business. It is very important that you prepare a business plan for your small business.

Business plan should serve as a road map for your business. It should state aims and objectives of your small business.

Furthermore, it should state where you want your business to be and when you hope to be there.

If you encounter problems, ask your mentor for advice or better still, seek advice from a consultant.

Most importantly, you should review and update your business plan as you learn more about your market and competition.

Not Doing Enough Marketing

Insufficient marketing is one of the major causes of small business failure. With the ever present competition and few people having disposable incomes, you need to adopt what I chose to call “aggressive marketing”.

Furthermore, should identify where your potential customers hang out. Take your business to them.

In addition, you need to update your offerings by ensuring that you are providing what customers are currently demanding. If you give customers what they need, they will not have any reason to look elsewhere for their needs.

Most importantly, you should ensure that your prices are set at levels customers willing be willing and able to pay. High prices will scare away customers. But too low prices could see your business crashing.

Business Failure: Not advertising

Failure to advertise your business can lead to business failure. If you do not advertise your business, nobody will know that your business exists.

Advertise your business on local radios, television, newspapers and magazines. Advertising your business should be a continuous process.

Consequently, the more potential customers know your business, the better your odds of selling and making more profits. You need good regular customers to remain in business.

Furthermore, you should register your presence in the social media. In particular, Facebooks, Instagram, Linkedin, Twitter, Pinterest are all good social media platforms to advertise your business.

Stop Or Reduce credit Sales 

Selling your goods on credit to customers can easily lead to business failure. There are many consequences of credit sales to customers.

While some of the customers you sold to may pay, others may not. As a result of credit sales you might have a substantial part of your working capital tied down in the hands of customers.

Furthermore, bad debts are normally written off to the Profits and Loss Accounts. The main effect of bad debts is that they reduce your profits and paves the way for your business to fail.

Therefore, if you have your capital in the hands of your customers, you should go after them and collect your money.

Related: How To Manage Small Business Finances Efficiently

To prevent business failure, you need to cut back on the cost of running your business.

For example if you are paying for a large store with only few goods on the counters, you will most probably operate at a loss. Look for a small store. Or share the store with another vendor who sells different product.

Furthermore, you should purchase your merchandise from cheap sources. The truth is if you buy cheap you will sell cheap. And if you sell cheap, you will retain your existing customers and get new ones.

Poor Business Processes

Your business can fail if there is no ease of doing business with you. You should be able to:

  • Meet customer deadlines
  • Get them to develop confidence in you

Customers do not like disappointments or delays in processing their orders. Furthermore, your business should be visible on the social media.

Not Keeping Proper Records

If you do not keep records of the financial transactions of your business, you will not be able to;

  • How your business is doing
  • Make sound business decisions
  • Compare the performance of your business with industry standards
  • Safeguard your assets
  • Know your liabilities
  • track your incomes and expenses
  • Monitor your stocks

You should consider hiring a bookkeeper or an accountant to write up the books for you. You could hire on  part-time basis or you outsource the job to outsider to do for you.

Do not think that the little amount of money you will pay to a Store Keeper, Bookkeeper or an Accountant to track your records is a waste of funds. Far from it.

Poor Customer Service

To prevent small business failure, you need an effective and efficient customer service.

Poor customer service can wreck your business because you will loser customers to your competitors.

And you will not be able to attract new ones. Besides, unsatisfied customers will not give you referrals or recommend your business.

What is the quality of your customer service like? Do you give a warm smile to customers when enter your shop, even if you are not happy? Do you thank your customers for their business?

Unsatisfied customers can spread negative news about your business.

Therefore, you should do everything possible to enhance customers’ shopping experience. Customer satisfaction is the key.

Most importantly, you should not allow any customer to go away angry. Make sure every customer smiles away from your shop.

Apologize to customers when things go wrong at your ends. Customers like apology. After all, apologies are free.


Samuel Ijenhi

CEO of Ijenhi Business Solutions


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