10 reasons why small businesses fail

While starting up a new business presents many challenges and involves a lot of risk, keeping it alive and kicking is an even harder task.

According to the Australian Bureau of Statistics, the vast majority of Australian businesses (97 per cent) are small businesses.

Of those which manage to make it off the ground, over a third are forced cease operating within the first three years, an alarmingly high rate for those looking to start a new venture.

The reason behind why so many small businesses fail is down to 10 key missteps.

1. Failing to keep track of finances

Many failed businesses take on too much debt rather than paying strict attention to their finances, and keeping careful records of all money coming in and going out.

2. 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 and failing to take advice before making big expenditures.

3. Poor location

A significant contributing factor to failed business is a poor location, and the general lack of self-awareness of the amount of business or competition in that location.

Unfortunately, a hip new part of town with cool shops and lots of foot traffic also comes with a price tag and the cheap areas are likely to be cheap for a reason.

4. 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 there is businss growth growing can all spur a owners to overextend their business financially.

5. Lack of reserve capital

Failed businesses usually find that they’re unprepared for unexpected increases in the costs of things like utilities, materials, and labor and haven’t kept enough reserve cash for the business to persevere through tough times and seasonal slowdowns.

6. Poor execution

Poor customer service and overall employee incompetence will quickly sink a small business.

Systems and processes for how tasks should be accomplished, and internal controls to monitor them, need to be developed.

7. An inadequate business plan

A well thought-out business plan forces business owners to think about the future and any challenges, including financial needs, marketing and management plans, competition, and overall strategy.

8. Failing to change with the times

The ability to recognise opportunities and be flexible enough to adapt is crucial for a business to survive and thrive.

9. Ineffective marketing

Customers can’t do business with you if they don’t know where you are or what you do.

Advertisement and promotion of a small business is relatively low cost, and essential.

10. Underestimating the competition

Small businesses need to earn customer loyalty and stay one step ahead of competition.