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Why Small Businesses Fail


Every year, tens of thousands of businesses enter the Canadian marketplace. Many will flourish and grow, and some will even make it big – companies like Shopify and Freshbooks come to mind. But there are also thousands of businesses that exit the market each year, and while there are a number of good reasons a small business owner might have to call it quits (e.g. moving, lifestyle change, health reasons), the reality is that many small business do simply fail.

Having a clearly defined business strategy and well defined goals is key to your success. Beyond a dream and a map, there many pitfalls along your journey that you would do best to avoid. Here are five of the biggest reasons why small businesses fail, and how you can navigate them:

  1. Cash Flow Problems: Most small business owners overestimate their ability to generate revenue and underestimates how much money they have to initially invest, and continually invest for at least the first few years. Small Business owners are often unprepared to manage cash flow problems and are surprised at how difficult or time-consuming it can be to access business capital.  To ensure cash flow issues don’t undermine your efforts, you either need to start out with a good sized nest egg for your business or be prepared to secure a small business loan like a Lendified Loan at least 6 months into your first year.
  2. Undefined Target Market: Who wants to buy your product or service? How do you plan to build your portfolio? This is the vital question that you have to address early on – one that should be supported by facts and market research. Your plan should be specific, taking demographics and psychographics into account. Focus on customers who have the potential to deliver the growth you want. Doing your homework and knowing and understanding the market is key.
  3. Not Knowing Your Enemy:  After defining your customer, the next step is understanding your competition in the marketplace. Why would your customer buy from you and not someone else? What distinguishes your business from the rest? Answering these questions is a critical step towards clarifying and communicating your customer value proposition, and it all starts with research and intelligence.
  4. Too Much Too Soon: While it seems like a nice problem to have, growing too quickly can actually cripple your business. For instance, acquiring new customers or clients before you have the means in place to service them can result in burnt bridges and reputation issues. Of course, when opportunity knocks, it’s tempting to answer. This is where small business funding, such as an online loan, can really make a difference, allowing you to hire staff or purchase the tools you need to accommodate rapid growth. Even with these resources available, strategic and controlled growth is always favourable.
  5. Not Being Flexible: Even if you have done your research and planned for every possible outcome, no plan ever unfolds the way you anticipated. Markets are unpredictable. There are many unforeseen variables that can help or hurt your business in the beginning. Your marketing plan might have been too detailed, or your actual customer differs from what you thought they would be. You need to be able to pivot and evolve your business plan.  Adaptation is often necessary to survive and thrive.

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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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