There’s a lot to love about starting your own business. You get to be your own boss, have flexible hours and pursue your passion. But those first years of running a business can be rough. According to the Small Business Administration, 21.4% of new small businesses close within one year, and only about half survive at least five years. Avoid a similar fate by learning from these six reasons small businesses fail:
- No demand. Perhaps the biggest reason for small-business failure: The market simply didn’t ask for it. Even if you ace the other parts of your business, you can only stay afloat for so long if nobody wants what you’re offering. Before entering a market, conduct research — such as surveying your target audience — to be sure the demand is there.
- Poor (or no) business plan. You need to plan for every stage of the business cycle: starting out, growing, maintaining and succession planning. Plan for seasonal demand, business cycles and economic downturns. Although you may need to update your plans as your business evolves, having a blueprint and contingency plans will make it easier to adapt to changes.
- Inadequate credit arrangements. Some business owners borrow money from friends and family to start their operations. That can lead to relationship conflicts. A business banker, on the other hand, is an objective professional who can help you evaluate your plans, monitor your business’s growth and arrange for the credit you need to cover startup costs, ongoing expenses and expansion.
- Underestimating the competition. No matter how successful you are, you always need to be aware of what the competition is doing. Someone is going to try to do it better, faster, cheaper — your goal is to stay one step ahead by continuously exploring ways you can improve and enhance your products and services.
- Lack of strategic pricing. If you set your prices too high, you’ll lose business to the competition. Too low, and you won’t cover your costs or make a profit. Research the competition and, if necessary, hire a consultant to help position your pricing. A marketing consultant may also be able to help you effectively advertise your business.
- Mismanagement. Small-business owners are sometimes driven, entrepreneurial types who don’t like handling day-to-day details. This can become an issue when a business grows beyond the ability of one person being able to manage it all. If you don’t like supervising people or juggling inventory, or if your business is growing too quickly for you to keep up, hire competent managers. Then you can devote yourself to the area of the business you enjoy most.
A member of the PeoplesBank Lending Team will be happy to meet with you to review your business plan and discuss our business products and services, including checking and savings accounts, lines of credit, leasing operations and cash management. Contact a member of our business team today!