Top 5 Reasons Small Businesses Fail in the First 5 Years

Sadly, 55 percent of new businesses fail within the first five years. At times this can be due to unexpected causes such as radical technology, market shifts, or changing regulations. But even in these cases, failure could have been prevented by careful planning.

Here are five common reasons that businesses fail.

1. Lack of Knowledge

Many businesses fail through insufficient knowledge. A great idea isn’t enough, even if it’s backed with drive and ambition. There’s no guarantee for your success, but some entrepreneurs will start over-spending as if there was. Smart entrepreneurs recognize that there is always something to be gained through study and analysis.

Monitor your customers, your competitors, your supply chain, and even your own processes and staff. Only with the right information can you make ongoing improvements. Gather feedback, establish measurable performance metrics, and take classes or seminars if you need to, but always expand your knowledge.

2. Short-Term Thinking

Many new businesses are cash-strapped. The owners are focused on immediate revenue, so they put emphasis on driving sales in hopes of generating more profit. If you’re always focused on accruing and spending cash, you’re in survival mode.

It’s better to plan out your long-term strategy step-by-step and focus on reaching short-term goals one at a time. Consider long-term assets like technology and employee training. Constantly look at maximizing your work space through eliminating waste, more efficient organization, and better storage solutions. The cost savings and improved productivity will boost profit margins every day that you’re in operation. If you work at home, maximize your living space so you can maximize your working space.

3. Spread Too Thin

You may be talented, but nobody is an expert at everything. Good leaders are the ones who can effectively build and leverage strong teams. Ego can play a part, but try to control the tendency to assert your authority.

For instance, if you hire an experienced expert in social media marketing, don’t assume your own instincts are better. If you feel like you’re in crisis management mode every day, stop and ask yourself if you aren’t part of the problem. If you respect your team’s talents, they’ll respect yours.

4. Bad Use of Capital

Good money management is critical. Even in times of high cash flow, where and how it’s used is critical. Don’t spend $10,000 on the latest telephony system if you’re already falling behind on your utility bills. You’re going to miss out on many opportunities if you don’t have the cash on hand to take advantage.

Every spending option should be evaluated and prioritized in terms of the relative risks and rewards. At times, landing a big new client may be more important than buying a new server. Even if you don’t have the cash, there are ways to get it. Also assess the risks and rewards of borrowing funds for the things you really need.

5. It’s All About You

Don’t let yourself get into the habit of thinking that your interests are the only ones that matter. If you went into business primarily to buy a Maserati or a big new house, consider that the money is coming out of your business profits. Your employees are also expecting some incentives, or they won’t be around for long.

If you’re focused on getting every deal worked out to your own maximum profit, partners, investors, and vendors may feel they’re getting cheated. They won’t be around long, either. You can expect more conflicts, poor service, and perhaps no service at all. Reward those who serve you well.

Instead of being focused on maximum profits and fast growth, the first five years should be devoted to developing a framework that will support you for the next 20 or 30 years.

Author: Anica Oaks is a professional content and copywriter from San Francisco, California. She loves dogs, the ocean, and anything outdoor-related. She was raised in a big family, so she’s used to putting things to a vote. Also, cartwheels are her specialty. You can connect with Anica here. If you are looking to maximize your living space and working space for your home business, Anica suggests you check out ExtraSpace Storage.