Four Reasons Why Small Businesses Go Out of Business

By Herman Pool
In Marketing
September 5, 2012

Kat / Vertical Axion


No one, in the history of the world, has ever started a business and expected it to go under. Still, three out of every ten new companies kicks the bucket within two years. Half of the remaining shops close up within five years, and that’s if you have a partner. If you’re a sole proprietor, your chance of staying afloat is dismal.

The reasons all of these businesses fail, however, vary astronomically. Sometimes it’s just market size and the demand of your customers going down significantly, but there are some things that are part of the startup process that can destroy slowly but surely. Take a look to see if you’ve avoided these mistakes.

Bad Planning

A business will always have trouble succeeding if it doesn’t have a solid business plan. Even if your business plan doesn’t follow the canonical format, it should indicate which elements your business depends on such as marketing, management, and long-term strategies. Where do you see your business in a year? How about five? Are there problems you can anticipate and plan for ahead of time? Get everything down in a text document or on paper before you launch your business. Your future self will thank you for it.

Low Funding

There have been a number of businesses that have tried to fund their operations on dreams and hopes. Dreams and hopes just don’t pay the bills. You need to make sure you have enough to get off the ground and start your climb towards the top for at least six or eight months. It’s really easy to underestimate how much money is actually needed to keep a business going, so make sure you calculate your operating costs (worst case scenario) and startup costs before you apply for a loan that isn’t large enough for your needs.

Marketing That Doesn’t Work

You need to let your target audience know that you exist. If you go about that in the wrong way, how do you ever expect to make any money? Successful business owners
know exactly how to target their audiences through the channels they would most likely use to find a business to serve their needs. If they don’t know how to do it themselves, they hire professionals to do it instead. Speaking of which, did you know that we specialize in Internet marketing here at Vertical Axion?

Underestimating Your Competition

Your services probably are amazing, but it’s still unwise to miscalculate – or ignore – your competition. Regardless of what you do or how unique you think your product is, you have competition. See if you can find a way to obtain a market analysis of your niche. Make sure it focuses on your area. Use that data to perfect or change your marketing strategy.

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