Why Small Businesses Fail

You’ve worked hard to grow your small business. It’s grown from an idea to an income producing enterprise. Yet despite your best efforts, you’re not sure if it will survive.

Statistically, even initially successful small businesses have sputtered and died. While there are many macroeconomic reasons why this might happen, it’s usually an internal issue that causes the small business to implode.

Only too often, it’s because the small business owner is over their head. They panic and do irrational things when they find themselves in unfamiliar territory. They don’t know how to face their growth spurt.

While a large business often has enough resources to manage growth, as well as consult with subject matter experts, a small-to-medium business may be faced with the prospect of working with limited resources and may have no idea what to do next.

As a small business owner, what are some of the challenges you face when your business has grown too fast for you to operate it with the same level of small-scale efficiency?

Here are 3 challenges that you will face when your business grows faster than you can handle:

Insufficient Capital

Capital management is the foremost challenge faced by a new business. Insufficient cash flow through the business can jam up business processes. It’s rather like a low amount of oil running through a car engine. Without sufficient oil, the engine can seize up.

It is at this point that a business must be able to tap into more capital to continue to fund its operating needs. While overheads may have gone up, its revenues remain the same. Fortunately, with the right lender, it’s possible to get the money you need to do the things you need to do. You can keep on producing the work that has made you successful until your revenue can catch up.

After the financial crisis starting in 2007, it has become increasingly difficult for a small business to get financial support from a traditional lender for many reasons. Fortunately, some enterprising online lenders have stepped in to provide financial relief. It’s now possible to get a customized online business loan to continue to mature your vision. A customized package may combine traditional business loans with an accounts receivable line of credit and inventory lines of credit.

Insufficient Management Know-how

If you have successfully managed to fund your business operations so that your profits now exceed your overheads, you are now faced with yet another grave challenge–managing your more successful business.

The management skills that have brought you to your present level of success may not be enough to take you to the next level.

You may discover gaps in your knowledge and ability to manage your business.

You and your senior management team may be struggling in the following core areas:

1. Financial management. You now need a more sophisticated way of allocating resources and measuring metrics.

2. Marketing campaign management. You may now need to market your business more aggressively but lack the necessary knowledge and experience on how to generate more leads.

3. Human resource management. You now need to hire more people to manage the increased workload, and this requires a deeper understanding of government regulations and labor laws.

You may either not have the expertise or you do have the expertise but are spread too thin to manage all the new things you must do. In fact, you may be so overwhelmed that you can’t even manage your own personal checking account.

What’s the solution?

First, determine the areas where you either have insufficient time or knowledge to manage your company.

Then, either take on the responsibility of educating yourself or train your existing managers to the learn new skills necessary to run the business.

If further self-education or staff training is unrealistic because of time or money constraints, hire someone who has the skills that you need — those skills that you and your senior management team lacks.

Since the solution is fairly straightforward, the real problem is that you don’t recognize that there is a problem, continue to run things the old way. Since you don’t realize you have a problem until you are overwhelmed and make costly mistakes.

Insufficient Business Processes

The third challenge is not re-engineering your business. While your business plan may have worked well in the past–after all, it brought you to your current point of success–it may not be big enough or detailed enough to take you into the future. Like the management problem, the real problem is that you don’t realize that you have a problem until things are out of control.

The solution is to review all your business processes, equipment, and mission statements and see which needs to be jettisoned, revamped, or upgraded.

The Real Problem

The real problem is not that you or your team are out of your depth when your business leaps to a new growth spurt. After all, the challenges a small business faces when it reaches a new level are not insurmountable.

If you lack capital, then you can arrange ways to get it.

If you lack management skills, you can either upgrade skills or bring more people with the requisite skills onboard.

If your current operational methods are outdated, you can always scale up your business processes or equipment. What causes a small business to fail is not recognizing they need to adopt a new way of doing business until it’s too late.

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