Resource Center » Why Do 50% of Small Businesses Fail in the First Year?
Small businesses are important to the country’s economy and to the communities they serve, yet 50% of small business owners find themselves closing up shop within the first year. Understanding why this occurs is the first step in avoiding a bankruptcy disaster!
Lack of Passion
It may seem like money and experience should come first, but a passionate business owner has an unstoppable drive that can propel through many obstacles. If you have a passion for your business, then you have the stamina to withstand the inevitable operating problems and focus on important matters.
For example, let's say there are two people in the dog grooming business—one went into business for love of the craft and the other went into business strictly to make money. The first owner is passionate about doing a good job and loves his clients, and the second has opened shop merely because the numbers suggest that it is a good financial decision. Which of these two small business owners will be the one to work longer hours when help does not arrive on time or try the hardest to please a fussy client? The small business owner who will persevere will be the one committed to the business for more than just money.
Passion will give you:
- Love for what you are doing
- Stamina for the long haul
- Drive to overcome obstacles
- An approach that deters "quitting"
Reward passionate employees by giving them imprinted logo sports bottles or sending them home with custom travel mugs.
Money Mismanagement
Never doubt that money plays a pivotal role in the success or failure of small businesses. Money problems can occur at any time when you're running a small business.
Money use or misuse affects several key areas:
- Start-up capital
- Lack of funds or credit for expansion
- Using business funds for personal expenses
- Poor inventory control leading to a loss in capital
- Over investment in fixed assets which leaves little for business pursuits
Many times, these issues stem from a lack of management skills.
Poor Management
Management skills are essential to the success of a small business. There is much more to small businesses than simply offering your product or service; owners must have the ability to manage money, employees, clients, and suppliers. If you mismanage any of the above, then you may discover that your sales quickly flounder!
Luck
Every once in a while, a small business needs a bit of luck. Being in the right place at the right time has launched many a small business to stardom; however, the reverse is also true. Something uncontrollable could happen even if you have all of the key elements in place, like a catastrophic illness, a natural disaster, or a fire.
Make your small business a success by avoiding common mistakes and maybe even teaming up with a partner who excels where you lack. All of these tips will help to keep your small business from becoming "just a statistic".
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