According to statistics, more than 400,000 small business start every month, but only a small percentage thrive to 10 years and beyond. Research by KNBS on survival rates of small business states that 46 percent fail in the first year, 4 percent during the 5 years and 11 percent during the first 10 years and sadly only a small percentage make it through to 15 years.
What causes the failure and how can you mitigate the issues that cause the shutdown to ensure your business become a corporate giant.
In this article, we will go through some of the major issues that cause a business to close or fail to reach their potential and how to remain amongst the percentage that remains afloat when others sink.
Lack of a Well Thought out Blueprint
Most small businesses lack a unique selling proposition and unique value proposition. A distinct selling proposal will define your business unique position in the market.
Make sure that you can clearly articulate the distinguishing benefit your small business is bringing to the market. While most business ventures have a good business plan they lack clear guidelines on how they intend to capture the market year after year.
The marketplace is dynamic and unless your business has a clear blueprint on how to survive the changes, your business will be among the failed business statistics. As a small business make sure you can answer the below questions.
• What sets you apart from the competition?
• Is your business unique and are you conducting your business in a unique way?
• Do you have a customized approach that no one else in the industry is using?
The survival of your business depends on how distinct your value proposition is in your market. It’s therefore imperative that you ensure you have a detailed business plan with a unique selling and value proposition.
Once you have the set your business up, come up with a marketing strategy and present your brand to the market.
In addition to the value proposition, a clear blueprint will also include the following
• Mission and vision of the business
• How the business intends to finance growth
• Clear financial objectives
• Well defined Marketing strategies
• Analysis of the market, including the competitor
• Overall resource plan
• Financial forecast
To keep your business running beyond the 15-year mark, make sure that your business plan is supported by research and a feasibility study.
Poor Management and Lack of a well-organized team
According to statistics one of the major reason why small business fail is poor leadership and management. As a business owner, it’s crucial that you identify your areas of weakness and seek the services of other in those areas. Poor management skills will lead to;
• Poor morale leading to failure to focus on the deliverables
• Low productivity or overproducing products
• Wastage of resources
• Lack of proper succession plans
• Poor and slow decision-making Process
• Slow growth or no growth of the business
Outsourcing task that you can’t manage will help you concentrate on what you are best at and ensure every aspect of the business is taken care of. While outsourcing make sure;
• Don’t go for cheap, go for quality
• Identify the core areas where you lack knowledge and expertise and outsource
• Before you outsource, make your budget.
• Communicate the deliverables to the team clearly
• Manage the outsourced team well to avoid conflicts
• Undergo training in areas where you are ineffective
Operational inefficiencies will make the business noncompetitive leading to closure. Make sure mechanism and structures are in place to ensure your clients get the desired service and product.
Lack of Growth Capital
To keep your business trailblazing, business growth is key. Most people hope the business will generate enough income to aid in growth. It may take a while before your business breaks even and makes enough money that can be used in growth.
If you are operating in a dynamic market where you constantly need to innovate, lack of capital will drive your business out of the market and make it irrelevant. A well thought out business plan, and a properly kept a financial record is crucial to being able to access investor funding or growth capital from other sources.
It’s imperative that you constantly review the progress your business is making and if the revenue is not sufficient, make sure you have a contingency funding plan.
Poor Financial Management
About 30 percent of small business can’t account for the money they make. Most people focus their early energy and efforts on marketing and fail to track the money.
Poor accounting practices put the growth of your business in jeopardy. As a business owner, you must know where the money comes from and goes for your business to thrive.
Invest in accounting software and outsource accounting consultant to help and advise you on the best money management practices. Proper financial accounting is the basis for running a successful business.
Competition and Failure to understand competition
Your business plan should have a detailed analysis of the competition and how you intend to scale the heights.
Failure to understand the competitive pricing and products will have a major impact on your business. You need to understand why the competitor’s product and services are doing better than your products and how you can catch up.
Regularly update the competitor analysis to ensure it remains relevant.
Failing to plan for Expansion
Before you take on any expansion plans make sure that you research, analyze the market. For example, the advent of online shopping has a major impact on the retail market, resulting in the closure of major supermarket brands.
Failure to analyze the market before expanding will result in business failure. Let the accounting consultant provide you with forecasted cash flows, budgeting and expected income.
Numbers don’t lie and it’s therefore important that you review the numbers and ensure that they are realistic. Make sure that you have the local and regional demographics, expected developments, spending habits, and other market factors before you embark on any expansion plans. Be sure that you have the funding for the expansion and if you don’t, the expansion idea has to be exceptional to attract investors.
Poor Marketing Strategies
Your business model or product may be the best, but if people don’t know about it, then the chances of your business rising are low.
The internet of thing has made it incredibly easy to advertise. The advent of social media, online marketing, emails, and websites make it easy to promote your products and services.
It’s however sad to note that most small businesses opt for traditional methods of advertising.
While the traditional methods of advertising work, a huge chance is missed by failing to take advantage of internet marketing.
According to a survey, 50 percent of small business don’t have websites, and they don’t advertise their products on social media. The internet is one of the most effective tools to advertise your products, especially if you are launching a new product.
Giving too Much Credit
Before you commit to any credit arrangement, it’s critical that you review your cash flows.
While landing a huge deal is good for your income statement, it could mean the death of your business if you give unrealistic credit terms.No matter how big a client is, put the interest of your business first. Negotiate for favorable credit terms that will not have a negative impact on your cash flow.
To grow your small business and ensure it thrives is no mean feat. It takes well-defined business plans and ideas, strategic operations, sound financial management and top of the class management practices for small businesses to thrive in dynamic and competitive markets.
Have a clear blueprint, follow it through and you will cruise through to the 15th year and beyond.
By Kabi Wangethi, a Freelance Writer. Follow her on Linkedin