5 Reasons Why Small Businesses Fail
Every year, lots of Canadians get the entrepreneurial urge and start businesses. Some of those small businesses become very successful and profitable. But every year lots of start-ups in Canada fail. Here are some of the key reasons that small businesses fail:
- The business is based on an idea that only a mother could love. A business idea may seem wonderful to the business owner, but a business needs a slightly larger market than the owner if it’s going to prosper. A business won’t last long if it offers a product or service that nobody wants or can afford.
- The business is undercapitalized. A business with too much debt will fail, even if it’s based on a great idea and is otherwise well run. The business has to make enough money to cover its loan payments as well as pay the owner. If a business doesn’t repay its loans, its creditors will pull the plug. Cash is king.
- The business doesn’t keep the customers happy. A fantastic business concept and good advertising may get the customers in the door — once — but it takes excellent customer service to keep customers coming back. Dissatisfied customers don’t pay their bills, won’t return, and won’t refer other customers. Without customers (who pay) the business will fail.
- The business doesn’t change with the times. A business must be able to adapt — what worked in the past may not work in the future. A business that doesn’t respond to the changing marketplace may find that there is no longer a market for its product or services, or that its customers have gone over to the competition.
- The business expands unwisely. Some unprofitable businesses expand in the hope that doing more business will increase profits — but expanding an unprofitable business just creates a bigger unprofitable business. And even a successful business that expands without proper planning may lose its core customers because it can no longer serve them properly, or may not generate enough new customers to cover the cost of financing the expansion.