Thousands (if not millions) of new businesses start up every year. Especially with home-based businesses so easy to get off the ground, there’s bound to be even more in the future. Many fulltime employees even have off-hours small businesses that don’t compete with their employer. That seems to be the fad of the 2000s—to have some type of business entity to call your own. A lot of the after-hours ones are borderline hobby businesses, but the goal is still to make additional income. It’s so easy to start your business, just like getting married. Get a state license, a name, a phone number, and a mailing address, and you’re in business. But like a marriage, a small business is not always easy to get out
of (and it can be expensive). I can tell you about both firsthand!
Everyone wants to open small, get lots of orders, make lots of money, and eventually sell out for millions. But sometimes—more often than not—there are many bumps along the road to success. How you maneuver around those bumps determines your outcome. If you want a successful business that stays in business, you must pay attention to what’s going on and make necessary adjustments along the way.
Usually, when a business fails, it’s a combination of several things that build up over a period of time. Rarely does one problem result in the doors closing in 30 days. You’ll see in the following list that tough competition is not among the major reasons. Every business has competitors; that’s the American way. So don’t think you can blame your problems on them—it’s a copout that won’t work. In fact, competitors actually make you a better business. But here are some real factors that cause business failures; if you see ones that you can change in your business, I suggest you do it today:
- Poor customer care. Also known as poor customer service, this is probably the biggest fault that unsuccessful small businesses have. Customer care is no longer a benefit; it’s expected! And if it’s not demonstrated in a pleasant and professional manner, customers will spend their money where they’re treated better. Give customers a smile and a little more than they expect—it will keep them coming back.
- Insufficient marketing. Just opening your store or office, hanging your sign, and saying “The line forms on the right” is not enough. You must advertise, promote, and sell your business to your potential customers. You may have the best product or service, but how can you make money if no one knows about it? You must do some type of marketing on a continual basis.
- Owner attitude. Occasionally, you’ll find business owners who think they are the king/queen and everyone (including employees and customers) must do their bidding and follow orders. The word about this attitude or business personality will spread quickly and will ruin a business.
- Poor employee training. Undertrained service and customer contact people can frustrate your customers and make them wish they went elsewhere. Constantly putting people on hold or saying, “I’ll be right back” makes your company less desirable to do business with.
- Excessive spending. You don’t need the latest model of everything when used equipment will do the job just as well. Lavish accommodations and first-class hotels are not for a growing business; save them for your vacation.
- Owner neglect. Opening your small business and not being present regularly is asking for problems. Even putting a competent manager in charge won’t work unless you monitor the manager’s progress in person. The numbers alone won’t tell you about customer care and training.
- Lack of business knowledge. If you’re not running a franchise, you’re on your own, and you need to know business
basics. Read books, take courses, or get professional help, because operating a business is more than just sales. Visit the library often to build up your industry and business knowledge.
- Excessive salaries. Don’t overcompensate your employees or yourself while trying to grow a business. Pay fair-market competitive amounts to new employees and save raises and bonuses for outstanding performance. People should be compensated for reasons other than longevity.
- Obsolete products or services. If you’re relying on the same products that you had when you started the business,
think again. How many people are still playing Pong, using 8-track tapes, or wearing men’s leisure suits? Get with the times and find or develop new products or services in your industry, or you’ll be left behind.
- Ownership change. The business is sold or passed down to relatives, and the new owner(s) think there’s a better way to make more money. Cutting services and selling lower-quality products is not the answer. Customers become accustomed to a certain level of quality, and if it’s reduced, why should they continue to purchase?
- No cash reserve. When things are going great, it’s time to store some resources for the slow times. Invest unnecessary capital in a money-market or mutual fund. It will be there for your needs when cash flow can’t pay the bills, and it’s available in a couple of days rather than the month you’d wait for a new loan.
- Inadequate product mix. Are your products what the customer is looking for in a business like yours? Do they complement each other and wow customers? Do you offer items not easily found or displayed, or is it time to upgrade your merchandising techniques?
- Out-of-line pricing. Are you trying to make your fortune on a few unsuspecting patrons by charging outrageous prices? Customers will soon wise up and disappear. This doesn’t apply to being paid for value-added services where you can justify a higher markup, though. Make your prices competitive but still profitable.
- Loss of a big account. A small business can’t afford to put all its eggs in one basket, because if it loses the basket, the entire organization will be in jeopardy. It’s exciting to acquire a large account, but don’t change your entire business over it and don’t surrender to extreme price pressures. Build your company around small to medium customers, and if a big order comes along, consider it a bonus.
- Tax problems. Whether you like it or not, you’re going to pay taxes. So you might as well follow the rules and pay them on time. Getting behind on payroll and sales taxes can result in government pressure, penalties, and late fees. Over time, it can grow to an overwhelming amount that the business can no longer handle.
- Loss of vision. Why did you go into business in the first place? Getting way off track from the path to your goals can
destroy any business quickly. Go find your mission statement and review it or change it for current goals and conditions.
You’ll notice that competition and economic conditions are not listed. This is because those are normal business situations that every business faces, and they can be controlled. Seldom does a business close because a big competitor moves in, unless the small business gives up without trying to find their niche and get close to their customers. Competitors can make your business even better by calling your attention to increased customer care.
Economic ups and downs have been and will always be here, and you need to have a plan to cope with them. Most business failures occur because of internal problems, not external ones. Maybe it’s time to look inside your business and see whether there are any of these monsters lurking around.