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10 Reasons Small Businesses Fail and How to Avoid Them


It’s estimated that 30% of Canadian small businesses don’t make it past the second year, and a further 20% don’t survive more than 5 years (Industry Canada). While this might seem like a discouraging number, by looking at the most common reasons small business fail and subsequently what you can do to avoid them, you’ll be well placed to buck the trend.

  1. Lack of Capital

Problem: Despite having a great idea many small businesses simply don’t have the operating funds to actually run the business. This means they either never really get off the ground or they run into problems a few months in.

Solution: Thoroughly calculate the costs required to run the business, don’t overestimate revenue coming in, and then secure adequate funding. This can come from various sources ranging from family and friends to investors and venture capitalists. A common source for those that don’t want to go to family and friends, and don’t want to dilute their equity by finding investors is to get a small business loan. While this traditionally used to be a time consuming and cumbersome process, the emergence of online lenders such as Lendified means this is no longer the case. With loan applications taking as little as 10 minutes to complete and being approved overnight.

  1. Cash Flow Problems

Problem: It’s not enough to just have enough money, but to have enough money at the right time. Managing cash flow is essential to having enough money on hand, when it’s required. However, due to things such as late payments, unexpected expenses and just mistakes in forecasting small businesses often find they don’t have money right as they need it.

Solution: Take the time to make a detailed cash flow forecast, so you don’t unexpectedly run short of cash. This can be a time consuming and complex process, so utilising technology such as Mentio to automate this process can be beneficial. Moreover, it’s good to have a ‘cash cushion’ so if unexpected expenses come up, which they inevitably do, you’ll be able to cover them. This doesn’t necessarily have to come from cash on hand but can be knowing you have the option to take a loan if necessary. While this usually isn’t a viable option with traditional lenders due to the time it takes for loan approval, with online lenders such as Lendified you’ll be able to get your loan approved in time to deal with unexpected expenses as they occur.

  1. Don’t Delegate Adequately

Problem: A lot of entrepreneurs are so personally invested in their product that they try to do everything themselves. Not only is this not possible in most cases, but it is also inefficient and usually leads to burnout.

Solution: Find a good team of employees that you trust, train them and then delegate work to them, leaving yourself to focus on those areas in which you can provide the most value.

  1. Underestimate the Competition

Problem: Whether it’s because they believe they have the best product on the market or because they haven’t taken the time to research their competitors, it all leads the the same thing. Small business underestimate the other companies in their niche until it’s too late and they’ve already lost significant business to them.

Solution: In order to maintain your competitive advantage, make sure to do an analysis of the competitive landscape. Additionally, continually monitoring your competitors will enable you to benchmark yourself against them, learn from their mistakes and most importantly not fall behind.

  1. Insufficient Demand for their Product/ Service

Problem: Many small businesses are so happy with their product/service that they fail to see if their target market actually wants it.

Solution: Conduct market research and ensure that your potential customers actually want what you’re selling. In many cases, it might just be a case of tweaking your product so it aligns with what your target market wants. Ultimately you need to determine what your unique value proposition is and make sure that it’s something your customers want.

  1. Failure to Advertise and Market

Problem: It doesn’t matter if you have the best product on the market if your customers don’t know about it.

Solution: Make sure to invest in advertising so you can communicate your unique value proposition to your target market, via the most effective channels. With the advent of digital marketing this doesn’t have to be expensive, and things like starting an email newsletter, online advertising and having a presence on social media can all help spread the word about your business.

  1. Business Model Isn’t Profitable

Problem: This is unfortunate case of when you have a strong unique value proposition and there’s sufficient demand present, yet the finances just don’t work out. The cost of acquiring your customers is higher than the revenue generated by them and so the business model itself doesn’t make sense.

Solution: This, again, goes back to planning; before starting out ensure that given your costs to acquire customers, your business can still be profitable based on what you expect to make from each customer. If not then all hopes not lost, see how you can change your business model so that it’s still viable: look into ways to decrease costs or do research to determine if you’ll be able to charge more.

  1. Not Going Digital

Problem: With more and more people spending time online, small business often fail to take advantage of this fact, losing out on a cost effective way to further their business goals.

Solution: At the most basic this would entail having an online presence through a professional looking website. However, there’s a lot more you can do, such as selling your product online, having an app or mobile website and being active on key social media channels.

  1. Poor Management & Leadership

Problem: Poor decision making from leadership and management can be the demise of many small businesses. When the people at the top, in charge of coordinating everything, aren’t doing their jobs correctly the rest of the business falls apart too.

Solution: Successful businesses needs leaders and managers that can inspire and motivate employees, and make sure things are functioning smoothly and that they are in line with overarching business goals. Either obtaining training or hiring people with the above skillset is key to making sure your small business will be successful.

  1. Changes in the Marketplace

Problem: Sometimes the problem has nothing to do with your running of the business per se, but external factors such as the economy or the presence of a new disruptive technology that makes your offering obsolete.

Solution: Just because these factors are external doesn’t mean they’re completely out of your control. If you follow the advice above particularly with regards to planning, managing your cash flow and keeping an eye on trends in your market niche, you’ll be able to if not anticipate, then at least deal with these changes as they arise. The key is to remain nimble and adaptable so once spotted, you’re able to adequately react to the changes, and in a timely fashion. The good news is that as a small business this is usually easier to do as opposed to a larger company.

While some of this advice might seem like common sense, it’s often overlooked or not implemented correctly. The difficulty often lies not in a single piece of advice, but in making sure all of the above advice is being followed at any given point in time. Remember the key is to implement everything in conjunction, and make sure all the above mistakes are being avoided to the best of your ability, and you’ll be well on your way to success.

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About the Author



Lendified is Canada's premier online lender for small businesses. The company was founded by former bank executives dedicated to provide businesses with fast, easy, and affordable financing. The Lendified team regularly produces blogs and guides to help small business owners succeed.

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