Why Small Businesses Don’t Survive
What Attributes to Failure?
1. The business lacks planning. The business is formed because an eager, ambitious, and willing entrepreneur wants to make money and get rich. Great intentions go into developing the business, however, not much planning or research is done. Being in the consulting business for more than nine years, I discovered more than 80 percent of business owners don have a business plan or a strategy for their business. Additionally, more than 75 percent of my Business Plan Writing and How to Start a Business workshop attendees were business owners with established businesses that were struggling and not able to grow. And, years later realized they skipped steps B through Y to get to Z. Fortunately for them, they did realize this mistake and decided to start over, getting all the in between knowledge needed to get to Z successfully.
Conversely, it is important for any business owner to know and understand their business. The mistake many of them make is hiring a consultant, friend, or family member to write their business plan. The purpose of writing a business plan is to get to know the business, product, industry, competitors, and customers. If someone else prepares your road map, how are you to know which way to go and how you going to get there. Their concept or vision is totally different from the business owner, so typically what happens, the plan ends up tucked away in a drawer, file cabinet, or underneath the unimportant papers in a box.
And, for those with a strategy really don ask themselves questions like what if the company don meet its sales goals; what if the product trend change how will I adapt; or what if the economy takes a turn? These are very important and real scenarios to consider. Unfortunately, they are commonly over looked and not addressed until that bridge is crossed. By that time it too late.
Then there are those, who, instead of seeking consultation or investing in workshops to educate themselves, they spend much time wishing and hoping for a miracle.
Often times business owners do not visualize the big picture, the scheme of things or don know how to execute the big picture. The big picture should include long term financial growth planning for financial solvency, expansion, alternative solutions and strategies if plan doesn work. A business can survive on hopes and dreams. It requires great leadership, management, and capital and good decision making skills. Businesses don fail because they don work, they fail because of poor decisions.
2. Business owners don have a lucrative financial portfolio in place. I yet to find a small business owner with a financial portfolio or reserves in case of an emergency such as economic downturns or slow cycles. A business owner failure to invest in the independence of its business and rely on capital infusion from the government or other financial institutions is by far the biggest mistake. The reality of financial assistance from SBA or conventional lenders is a blurred reality (for grass root business and most small businesses). A large number of small business owners especially the grass root businesses do not qualify for a business loan for one reason or another. That reality. A business owner without a financial portfolio is more than likely to set him or herself up for trouble in the marketplace, and will not survive a healthy existence.
3. Commitment and drive. There has to be a continuum level of commitment when owning a business. The business owner must be willing to do whatever it takes to make the business run properly and be profitable. There has to be a strong desire for success and willingness to learn how and when to change with trends, its industry, and consumer needs. From my observation, after the first or second year in business the honeymoon is over and reality kicks in. Some are willing to stay on path and fight it out, and then there are those who lose interest and stop fighting.
Now let talk about external reasons why small businesses don survive. The government, environment, and sometimes the industry are responsible for small businesses dissolving. Our government has one classification for small businesses, so when instituting a new service or program, yes it may benefit some of its targeted interest, however, on the other hand others will suffer.
In reality there are two classes of small businesses. As mentioned previously small businesses and grass root businesses. What constitutes a grass root business, the mom and pop stores, the businesses that rely on community support, and home base operators. Tax cuts, stimulus packages, credits, and lending programs do not make its way down to these businesses. Therefore, they are left unforgotten with no support other than that of local community agencies like the SBD centers, which can only do so much.
When our government change laws and policies as it relates to the business community such as union participation and NAFTA, grass root businesses suffers most. I would like to see SBA change its classification standards and begin devising some sort of system, which would allow the needs and challenges of grass root businesses to be addressed in a way, which they can see some benefit for their efforts of participating in the marketplace by providing goods and services to consumers.
Small businesses must learn to become more self reliant and independent in their thinking and planning. Success is heavily depended upon the knowledge and skill sets of the principals running the business.
For more information on creating a financial portfolio and strategies, look for my new book Where The Money, Big Dollars to Do Big Business Like the Big Boys.