Can You Net Payments And Draws On Debt Cash Flow 10 Good Reasons Why Small Enterprises (Small Businesses) Fail

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10 Good Reasons Why Small Enterprises (Small Businesses) Fail

You will agree with me that there are so many small businesses that have contributed a lot to the growth of the economy. They have created employment opportunities for many families, although some remain small throughout their lifetime.

It is obvious that those starting new ventures have goals to achieve. And to mention that every company has its own goals to achieve such as maximizing profit and sales, minimizing costs, maintaining a certain level of production and workforce, etc.

Failure of a business opportunity is what an entrepreneur does not want. As much as we agree with the fact that there are companies that have succeeded, we also have to accept the fact that a good number of them have failed even before two years have passed since the start of business.

If aspiring entrepreneurs address the causes of small business failure, then they will not fall victim to the same causes of failure. This is because they will be able to identify these causes and fix them before it is too late.

Now you may be wondering why some businesses remain small throughout their lifespan, even though some are profitable or able to grow.

4 Reasons Why Small Businesses Stay Small

1.) The owners of these companies prefer not to expand their business. Some solopreneurs don’t want to be burdened with the challenges of running a large company. They don’t want to hire people to help them run the business, but prefer family members to help them.

2.) The nature of the product/service the company deals in does not allow for expansion. There are people who offer products/services that make it difficult for their business to grow.

3.) Lack of capital for expansion. There are small businesses that are viable and have the potential to grow, but lack sufficient capital. Such companies have a challenge in securing funds from financial institutions. Lack of capital plays a negative role in inhibiting the growth of small businesses.

4.) Very low demand. If the company has very low demand for its product or service, then at the end of the fiscal financial year/trading period, the company will not make a profit, and if it does, it is very low, so the scope for expansion is very minimal. It should be noted that generating insufficient profits as a result of very low demand hinders the growth of small businesses.

However, there must be a starting point and as such every company starts as a small company and gradually grows into a medium company and finally becomes a large company which is either a joint stock company or a joint stock company. Keep in mind that a partnership firm can also grow into a large firm.

Reasons for the failure of small businesses

1.) Wrong reasons for starting a business: People who start businesses for the wrong reasons have failed. Just because another person is making high profits in a certain type of business does not mean that you will make the same amount of profit as he/she if you start the same business.

2.) Poor business management: When a company is poorly managed, it becomes difficult for such a company to be successful in its operations. Finance, marketing, purchasing and sales, planning, hiring and managing employees are what most new business owners fail to do effectively, causing their small businesses to fail.

3.) Lack of commitment: Starting a business requires someone who is committed to ensuring its success. Neglecting the company will lead to the failure of the company. Many small businesses have failed because the owners did not take the time to monitor performance and market them. Some entrepreneurs leave their company to be managed by incompetent people who do not have knowledge of bookkeeping and business management.

4.) Lack of finance: Small businesses have failed due to lack of adequate finance. Some owners underestimated the amount of capital needed and because of this underestimation, some ended up running out of working capital and going out of business.

There are those who have no reserves, which has made them unable to take care of losses and accidents when they occur, which has made them go out of business.

5.) Excessive business expansion: This led to the collapse of many small businesses. This happens when you borrow too much money beyond what the business needs to expand the business. Moving into markets that are not profitable is also an over-expansion for small businesses.

An ideal expansion is one that is driven by customers due to their high demand for products and services, which leads to high sales, thereby providing the company with good cash flow.

6.) Location: Where a business is located is crucial in determining its success. Small businesses have failed because they are located in areas that are not ideal for doing business. They should be in areas that are accessible, populated and where there is a demand for their products and services.

7.) Personal use of business money: This is the biggest challenge many small business owners face. They raise money intended to operate their companies to satisfy their personal wants and needs. If they continue to withdraw money from their companies without paying it back, their companies will eventually run out of funds, forcing them to shut down their companies.

8.) Lack of delegation: Small businesses have failed because the owners did not delegate certain tasks to their employees. They believe that if they are delegated, then their employees will not perform these tasks as they would perform them personally. When such owners fall ill or are absent from their businesses, the operation of some tasks will be crippled until they start working again.

9.) Without diversification: Small businesses that offer only one product/service are prone to failure compared to those that have a variety of products/services.

10.) Procrastination and poor time management: Postponing tasks that small business owners find inconvenient to perform has caused small businesses to fail. An example of such tasks is tracking debtors in the payment of debts (debt collection).

Time management remains a challenge for many small business owners. If important tasks such as delivering products to customers, purchasing inventory, etc. are not completed on time, the business will lose customers.

The above are not all the reasons for the failure of small businesses, there are more reasons.

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