Top 10 causes of small business failure:

 No market need: 42 percent;

 Ran out of cash: 29 percent;
 Not the right team: 23 percent;
 Got outcompeted: 19 percent;
 Pricing / Cost issues: 18 percent;
 User un-friendly product: 17 percent;
 Product without a business model: 17 percent;
 Poor marketing: 14 percent;
 Ignore customers: 14 percent; and
 Product mistimed: 13 percent.
https://smallbiztrends.com/2019/03/startup-statistics-small-business.html

Why Do Small Businesses Fail?

According to Investopedia, the four most common reasons why small businesses
fail are a lack of sufficient capital; poor management; inadequate business planning;
and overblowing their marketing budgets. cash flow problems. But there are many
more than four reasons why early-stage businesses in this country don’t survive.
A CBInsights analysis of 101 startups polls the reasons why those businesses failed,
according to their founders. Here were the top results:
 42% of small businesses fail because there’s no market need for their services or
products.

 29% failed because they ran out of cash.

 23% failed because they didn’t have the right team running the business.

 19% were outcompeted.

 18% failed because of pricing and cost issues.

 17% failed because of a poor product offering.

 17% failed because they lacked a business model.

 14% failed because of poor marketing.

 14% failed because they ignored their customers.

Clearly, there are a many reasons why small businesses fail, but a few keep coming
to the top: capital access, cash flow, lack of demand, and poor management.

https://www.fundera.com/blog/what-percentage-of-small-businesses-fail
What percentage of small businesses fail?

According to the Small Business Administration (SBA) Office of

Advocacy’s 2018 Frequently Asked Questions, roughly 80% of small
businesses survive the first year. That number might be surprisingly high to
you, especially considering the commonly-held belief that most businesses
fail within the first year.

However, from there the number falls sharply. Only about half of small
businesses survive passed the five-year mark, ranging from 45.4% to 51%
depending on the year the business was started. Beyond that, only about
one in three small businesses get to the 10-year mark and live to tell the
tale.

All this might sound discouraging. But, by identifying the primary causes of
small business failure, adjustments can be made to allow you to place the
odds in your favor.

Why do small businesses fail?

Knowing that about half of all small businesses run out of gas within the
first five years, the real question then becomes this: Why do those small
businesses fail, and how can you avoid it?

There are a variety of reasons that small businesses fail, but a few stick out
among the rest. According to CB Insights, which analyzed over 100
businesses' postmortems to determine the primary reason for startup
failure, the top five reasons small businesses fail are as follows:

1. No market need

The most commonly cited reason for small business failure was more
nebulous than others on this list but also much more fundamental to what
makes a business idea great in the first place: whether it solves a need.

Identifying a need in the market before pulling the trigger is critical to

small business success. You can have the greatest product in the industry,
an effective pricing structure and a huge budget, but if no one wants what
you’re selling, there’s not much you can do to save what is destined to
become a sinking ship.

However, if you’ve done the work of identifying a need for your product or
service and are catering effectively to that market, the reasons for failure
become more diverse, with business owners of the same study having cited
multiple reasons at once.
2. Not enough capital

The second most commonly cited reason for failure was not having enough
capital.

This isn't so surprising, given that more than one-quarter of small business
owners say they aren’t able to obtain the funds they need to operate their
business, according to a National Small Business Association study.

Similar to not meeting a market need, there’s often nothing you can do if
your business doesn’t have enough capital to operate. Whether it's a failure
in raising funds through investors, crowdfunding, obtaining a business loan
or generating your own revenue, not having enough capital may not
instantly close the metaphorical (or literal) doors, but it will at least cause a
slow death by way of limiting your marketing, production and every other
critical area of your business.

3. Not the right team

This third reason is difficult to break down because it’s so diverse, but it
comes down to not having the right team behind you to get the job done.

Some founders and CEOs of the study cited not having a partner to balance
them out, while others mentioned that their founding team was inadequate
for building the MVP they needed to launch the business.

4. Competition

In many tech-related industries, competition is thick and can often be the

reason a startup isn’t able to stay profitable. However, competition extends
into every space and can be a contributor to a potential business failure no
matter industry.

Sometimes, business owners become obsessed with one or more areas of

their business while ignoring what really works for a competitor’s product
or service. Keeping a well-rounded perspective is difficult but crucial to
avoid being run down by competitors.

5. Pricing

Pricing is the final of the major reasons for small business failure. Pricing
can be difficult in certain industries, especially software and various
services, as there are often little to no reference points for how much a
company should charge.
Price your product too high and you’ll push away potential customers, too
low and you won’t be able to turn a profit. Figuring this out is easier said
than done if you don’t have anything to go off of. However, it’s no less
essential to ensuring your business’ success.

While it’s encouraging to know that most small businesses survive the first
year, it may take the wind out of your sails to know that half of small
businesses fail within the first five. By studying the primary reasons for
small business failure, however, you can learn valuable lessons that will
allow you to position yourself for a greater likelihood of success.

Forbes

Reason #1: Not Investigating the

Market
So you've always wanted to open a real estate agency, and you finally have the
means to do so. But your desire to open the agency blinds you to the fact that
we're in a down housing market and the area you want to cover is already
saturated with realtors, making it very difficult to This is a mistake that will
cause you to fail from the beginning. You have to find an underserviced or unmet
need within a market and then fill it, rather than break into the familar field. It's a
lot easier to create, and then satisfy, a new demand – rather than compete in an
already-crowded pack.

Reason #2: Business Plan Problems

A solid and realistic business plan is the basis of a successful business. In the
plan, you will outline realistic goals for your business, how your business can
meet those goals and possible problems and solutions. The plan will figure out if
there's a need for the new enterprise through research and surveys; it will figure
out the costs and inputs needed for the company; and it will outline strategies
and time lines that should be implemented and met.

Reason #3: Too Little Financing

If you have started a company and things aren't working out – you've got
little capital and a struggling business – you're really not in a good position to ask
for another loan. Be realistic at the beginning, and start with enough money that
will last you to the point where your business is up and running, and cash is
actually flowing in. Trying to stretch your finances at the beginning may mean
that your business never really gets off the ground, and you'll still have a lot
of cash to repay.

Reason #4: Bad Location, Internet

Presence and Marketing
Location, location, location is everything if your business relies on foot traffic.
Just as important, however, is internet location. These days, your web and your
social media presence can be just as important as your company's physical
presence. People shop, search and research online for everything these days. So if
the need is already there, the virtual availability and visibility of your business is
crucial.

Reason #5: Rigidity

Once you've done the planning, established your business and gained a customer
base, don't get complacent. The need that you're fulfilling may not always be
there. So monitor the market and know when you may need to alter your
business plan. Being on top of key trends will allow you lots of time to adjust
your strategy so that you can remain successful. One must only look at the music
or video industry to know that successful sectors can undergo huge changes.

Reason #6: Expanding Too Fast

Now that your business is established and successful, it's time to expand, but you
must treat the expansion like you're starting all over again. If you are physically
growing, make sure that you understand the new areas and markets into which
you'll now be reaching. If you're expanding the scope and focus of your
enterprise, make sure you understand your new products, service and intended
consumers as much as you do with your current successful business. When a
business expands too fast and doesn't take the same care with research, strategy
and planning, the financial drain of the failing operations can sink the whole
enterprise.
https://www.investopedia.com/slide-show/top-6-reasons-new-businesses-fail/

Startup Failure Rate Statistics

1. Incompetence, at 46%, is the most common reason why
businesses fail, according to a Statistic Brain study.
(Statistic Brain)
In this case, the term “incompetence” refers to a wide variety of
inadequacies. These include emotional pricing, no experience in
record-keeping, a lack of planning, no knowledge of finance,
failure to pay taxes, and spending too much with limited business
revenue.
2. The percentage of startups that fail after four years in the U.S.
is over 50%.
(Statistics Brain)

Businesses in the fields of information (63%), transport,

communication and utilities (55%), and retail (53%) are the most
likely to fail. Their somewhat more successful counterparts
include real estate, finance, and insurance (42% failure rate),
along with education and health (44%).
3. 65% of entrepreneurs admit they were not fully confident they
had enough money to start their business.
(Business Insider)

Sadly, 93% calculated a run rate of under 18 months. Of these,

25% calculated a run rate of less than six months, while 36%
didn’t make any calculations at all.
4. Only 9% of businesses fail due to an utter lack of passion.
(CBINSIGHTS)

How many new businesses fail just because their owners simply
don’t care enough to make an effort? Not too many, as it turns
out. Still, this is a ridiculous reason to go down. As stated in the
infographic, CBINSIGHTS performed post-mortems on 101 failed
startups to learn what drove them to an early grave. Mostly, it
was a lack of market need, inadequate funding, or an
incompetent team.
5. In 2018, there was a decline of about 2% in cultural support,
human capital, competition, internalization, and risk capital.
(Global Entrepreneurship Index 2018)

Unfortunately, the Global Entrepreneurship and Development

Institute has noticed that the overall environment in 2018 is less
supportive of startups and entrepreneurship.
6. 56% of companies that raise a follow-up round of funding after
their seed are then able to raise a second follow-up round.
(CBINSIGHTS)
Wondering how to make a startup company successful? Make
sure you project a professional, hard-working image to earn
subsequent funding. As this research shows, it’s easier to raise a
third round of financing than a second one, with only 40% of
businesses successfully raising their first post-seed round. After
the third round, though, your chances of getting subsequent
funding are likely to drop steadily.
7. Access to talent (63%) was the critical issue affecting startups
in 2019.
(US Startup Outlook 2019)

Even the best startup business will face a number of challenges

on its way to success. In the 2019 US Startup Outlook survey,
nearly 1,400 technology and healthcare startup founders and
executives cited the most important public policy issues affecting
their business. The most compelling issues other than access to
talent were healthcare costs (44%) and cybersecurity (40%). The
final three concerns were customer privacy (33%), corporate
taxes (22%), and international trade (also 22%).
8. In 2019, 50% of U.S. startups say their more realistic long-
term goal is to be acquired, 7% less than in 2018.
(US Startup Outlook 2019)

A larger percentage of startups compared to last year say they

don’t know what their ultimate goal is, underscoring the difficulty
of planning an exit strategy amid increased market volatility.
With plenty of capital available, many corporations, private equity
funds, and scaling companies have the resources to make
acquisitions.
9. Only 6% of U.S. startups believe organic growth will be their
company’s next source of funding.
(US Startup Outlook 2019)

Organic growth is crucial, as startup success statistics show.

Other important sources of funding include bank debt, IPOs,
mergers, government grants, ICOs, and crowdfunding.
10. 50% of U.S. startups say they are concerned trade policy
between the U.S.A. and China will hurt their business in 2019.
(Exploring the Factors of Startup Success and Growth)

Of those, 33% are somewhat worried, while 17% are very

concerned. This might be due to China’s “Made in China 2025”
plan. This is a strategic project issued by Chinese Premier Li
 Keqiang and his cabinet in May 2015. In short, China plans to
move past being the world’s “factory” and start producing higher-
value products and services. The small business survival rate –
which currently sits at 30% past the 10-year milestone – might
not drop because of this economic shift. There is another issue,
though. According to a Churnbase study, China has more unicorn
companies than the U.S.A., in spite of America being the primary
source of venture capital.

Why Some Startups Succeed (and Why Most Fail)

 Market research: You’ve fulfilled your lifelong dream by starting
a real estate agency. But the area you should be covering is
already packed with realtors, and your service is surplus to the
market’s needs. You fail.
 Business plan: Identifying market demand is just the beginning.
You need to split your business plan into small, achievable goals,
and predict potential problems and solutions.
 Funding: Whether you’re backed by a venture capitalist, an
individual contributor, or the government, your business will
probably need repeat investments. The best startup advice you
can get is to not stretch for cash during your first year, or you
might never get off the ground.
 Location and marketing: An integrated, multi-channel online
presence is a must for any business to survive in the 21st
century. If you open a coffee shop with no website or social
media presence in a neighborhood that couldn’t care less, you’re
going to have a bad time.
 Knowledge: The truth is that some entrepreneurs take up this
challenge with little to no previous knowledge of finance,
accounting, or their niche. Make sure you enroll in courses to
learn the skills you need before you try to break into the market.
https://www.smallbizgenius.net/by-the-numbers/startup-statistics/

Infographic: The 20 Most Common Reasons Startups Fail and

How to Avoid Them
Opening and operating a successful startup requires some luck hard-work and
thoughtful planning -- as well as the ability to adapt that plan. Having been
involved as a consultant to numerous startups over the past decade, I have
seen some fail, some achieve a modicum of success, and some make it big.
Here are a few do's and don'ts that will help guide your startup to the
promised land:

Business plan
 Don't think that a great idea or a great product is enough. The startup
graveyard is littered with amazing ideas and products that have failed.
 Do have a business plan that includes every aspect of how you will run
your operation and how it will be successful. It should include all
anticipated costs, marketing, manufacturing, the technology
required and staffing. A business plan should also include how you
will market and sell your product.

Related: How to Start a Business With (Almost) No Money

Research
 Don't think your idea or product is original and because you and your
friends think it's amazing, means that it is and there's a market for it.
 Do lots of research before you spend your money. As a consultant, I
have on three separate occasions been asked to help with a business
plan for a startup, where I discovered almost exactly what they are
doing has been tried before and failed. In two of those instances, the
previous failures indicated that the idea wasn't good. In the third
instance, we were able to learn from the previous mistakes and actually
make a successful run at it. The number one reason startups fail is
that there is no market for their offering.
Funding
 Don’t assume you will get financing other than the money you start
with from yourself, family and friends. Only a very small percentage
of startups get Venture Capital (VC) funding and in fact, the funding
bubble has burst. And that means early-stage startups are getting little
or no love from outside equity firms.
 Do assume the initial funding you have will be all you get, so the goal
is to have the lowest burn rate possible. Therefore, your initial business
plan should have a route to profitability and sustainability before the
 money runs out. The number two reason startups fail is that they run
out of money.

Related: The Complete, 12-Step Guide to Starting a Business

Investor deck
 Don't think that your expert knowledge of your business, a well-
developed business plan and proficiency in PowerPoint are enough to
craft an investor deck that will get a private equity firm's attention.
 Do hire an expert consultant who has done this before. VCs can smell
an embellished or amateurish deck 100 miles away. You typically only
get one look by a potential investor, so make sure your investor deck is
the absolute best it can be.

Tech
 Don't assume that technology will be easy or come as scheduled. In
almost every startup I have been involved with, where the need for
technology advancement was crucial to success, there were
unanticipated issues and delays.
 Do assume that there will be delays in technological deliveries and
therefore you need to leave a buffer for that in your business plan. Do
have a competent development team and if they are not performing,
replace them as soon as possible.

Team
 Don't think that you can go at this alone or that it will be easy to
assemble a winning team.
 Do select your team members carefully, trying to add as much
diversity as possible. The most successful startups that I have seen
have mixed experience and newbies as well as the more traditional
kind of diversity. The number three reason startups fail is that they
have the wrong team.

Related: Need a Business Idea? Here are 55

Ego
 Don't think customers are just waiting for your offering and investors
will be lining up to give you money simply because your idea is
 amazing -- even if you have been a successful serial entrepreneur in the
past.
 Do be humble and realistic about everyone you meet. Relationships are
a key to success, and like with personal relationships, if you want to be
successful, be sure you see yourself as others see you. I have witnessed
a lack of self-awareness and a big ego from owner's doom potentially
successful startups.

Old-Fashioned values
 Don't think you are leaving a nine-to-five job for the easy and flexible
life of being your own boss. A startup is a seven-day-a-week
occupation and now it's your money and reputation that are solely on
the line.
 Do plan to work harder than you ever have with little return on your
efforts for an extended period. Do be honest with everyone you interact
with, as your reputation will ultimately be a key to your success.

To have big success as a startup, you'll have to master all the do's and don'ts
above, and that's a daunting task. So, before you begin, the question you must
ask yourself is: "How badly do you want it?!"

10 REASONS WHY SMALL BUSINESSES FAIL (AND

HOW TO AVOID THEM)
10. No Business Plan or Poor Planning

This reason is especially true for brand new small business owners. What you
think sounds like a good business idea on paper may not fare so well in
reality. (For some hard truth, see the fastest-growing occupations as
measured by the Bureau of Labor.)

This doesn’t mean you should ignore your passions. Instead, it means you
need to do a little research and business planning.

A business plan forces you to define your Unique Value Proposition (UVP)
— what differentiates your project from its competitors. In a sea of food
trucks gathered in a parking lot, how will yours stand out? Is it the food? Is
it the service? Is it the neon hues and festively decorated truck? Is it the
daily social media promotion? Likely, it’s all of the above. Maintaining a
sustainable business model requires setting yourself apart from competitors.
Other important considerations include: Who comprises your customer
base? How will they buy your product or service— in-store, online, or
both? What’s your marketing plan? How will customers find out about your
business? What are your cash flow projections? Your startup capital? How far
will your cash reserves take you? Remember to factor in both business and
living expenses, as most businesses are not profitable during their first year.

9. Failure to Understand Customer Behavior Today

In our connected age, ‘the customer is always right’ rings more true than
ever. For example, today’s consumers expect small brick and mortar
companies to accept credit cards and “currencies” like Apple Pay, even if
the shop is a tiny mom and pop operation. And they demand quality
customer service. If you don’t deliver it, expect your customers to complain
loudly on social media and with other communication tools.

For better or worse, review sites and platforms amplify word-of-mouth

marking.
In our digitally obsessed society, it’s easier than ever for customers to share
their thoughts and opinions about the businesses they interact with — which
means it’s easier than ever for business owners to monitor and solicit
customer feedback.

Not sure where to start? Here is a list of channels to help you monitor
feedback and engage in conversations with customers.

Social Media. All social media platforms (Facebook, Twitter, Instagram,

Pinterest, etc…) are great social listening tools that make it easier than ever
to listen to your customers. In fact, in today’s world, using a social media
platform to contact a business is often preferred by customers as a faster
alternative than traditional phone calls. Thanks to push notifications that
alert you when your business has been mentioned, re-tweeted, liked, pinged,
or poked, knowing when to engage with customers is easier than ever.

Yelp Reviews. Yelp is one of the go-to destinations for people who want
to find local businesses. With over 148 million cumulative reviews, it’s also a
great place to find out what customers are saying about their experience
with your business. If a company receives a poor review, Yelp encourages
the business owner to jump into the conversation, so you have an
opportunity to apologize or explain.

Google Reviews. Just like Yelp, this a more passive channel than social
media, but nonetheless, very important. Google is dominating the review
market with 6 in 10 consumers now looking to Google for reviews. Since
literally everything is Googled these days, your business’ Google reviews are
likely one of the first things a user will notice about your business.

Dedicated Customer Advocacy Websites. One of the most trusted

websites for consumer reviews is Trustpilot. With over 45,000 new
reviewers each day, they’ve built an entire online review community
dedicated to helping customers share their genuine experiences.

Customer Surveys. Surveys are still one of the best ways to ask customers
specific and direct questions. If you collect customer email information at
the point of sale, you can quickly identify your top customers and previous
customers who are less engaged. Using this data, you can create a survey
for free using SurveyMonkey to find out how you can improve your
business. It doesn’t hurt to offer an incentive for completion, like a discount
on their next purchase.

With 85 percent of consumers saying they trust online reviews as much as

personal recommendations, it’s imperative that your online reputation is
intact so that potential customers aren’t turned off by poor reviews. At the
very least you should try to make sure your positive reviews outnumber the
negative ones. While poor reviews may not bring down a startup on their
own, they play a large role in the success of brick and mortar businesses.

At the very least, you need to keep your business information current across
as many channels as possible. ShopKeep offers an option to manage your
online presence directly from your POS BackOffice, but you can also
manually enter your information around the web.
8. Inventory Mismanagement

Your business startup cannot be successful if your inventory is poorly

managed—full stop. According to the Small Business Administration
(SBA), problems with inventory ranks among the major reasons new
businesses fail. Poor management can often lead to inventory shortages and
overages — silent cash flow killers.

It’s a rookie mistake that easily happens to new businesses that don’t
understand their sales patterns. The best way to combat this is to use
inventory management software or a point of sale (POS) system that can
track inventory and provides reports detailing your best and worst selling
products to help you identify sales patterns.

If you’re not keeping track of your top-selling items or when they’re in high
demand, you’re going to experience inventory shortages that will shrink your
profits.

As a merchant, you take on risk when you buy large amounts of inventory
with the goal of selling it for a profit. If you don’t sell those products as
quickly as you forecasted, they can lose value or become obsolete. This
forces you to sell them at a deep discount, or not at all. Until you can recoup
your money by selling the inventory you have on hand, your capital will be
tied up in a lot of unsold inventory.

Picture this. Instead of thinking of stock items as inventory lining your

shelves, think of it as piles of cold hard cash. Each product in storage or your
local warehouse is cold hard cash you’ll never see since it’s not contributing a
return on investment (ROI).

The harsh reality is that U.S. retailers are sitting on $1.43 of inventory for
every $1.00 in sales they make. Proper inventory management using
modern tools will ensure you’re not one of them.

7. Unsustainable Growth

In business, slow and steady wins the race most of the time. Expanding too
quickly, which usually entails financing on credit like a small business loan,
can backfire if the market changes or you hit a rough patch.

Trying to take on more business than you can handle drains your working
capital and usually results in a quality decline. You are overwhelmed and
your product or service suffers.
Instead, be smart about which customers you court, and how you will pay
back each business loan. Saying no is part of running a business.

5. Trying To Do It All

Small business owners are a scrappy bunch, and tend to view themselves as
Jacks (or Jills) of all trades. But entrepreneurs, like all people, have strengths
and weaknesses, not to mention a finite number of hours in each day.

Delegation is your friend. Whether that means hiring your first employees
or investing in software that cuts down on busywork, your business will
only start making money once you offload some of your responsibilities onto
other qualified shoulders.
4. Underestimating Administrative Tasks

When you were planning your company, maybe you imagined happy
customers, smart marketing, and of course, plenty of cash. You probably
didn’t imagine spreadsheet after spreadsheet. But large chunks of running a
business revolve around administrative tasks.

From inventory management to managing employees to all the bookkeeping

and accounting involved in the endless quest to meet your financing goals
and turn a profit, administrative responsibilities can easily eat up your entire
day.

According to a poll conducted by SCORE, 47 percent of small business

owners dislike the financial costs associated with bookkeeping, and 13
percent dislike the administrative headaches and the amount of time it sucks
out of their workday.

So be prepared. Hire accordingly or outsource many of your rote tasks to

technology. As an example, ShopKeep’s iPad point of
sale seamlessly integrates with QuickBooks, so you never have to
manually input your sales data. Shortcuts like this save you time, and time is
money.
3. Refusal to Pivot

That’s right, old-fashioned stubbornness comes in at #3 of the top reasons

small businesses fail. It’s easy for entrepreneurs to become obsessed with
their business idea or product, even when all evidence points to it not being
a success.

Maybe by the time your brick-and-mortar store is celebrating its second

anniversary, all the excitement and shininess of your new store has worn off,
and fewer locals are walking through your doors. Now what? Do you become
a statistic and resign to failure, or do you take the time to figure out where
you need to adapt? Maybe you pivot to appeal to tourists, or stock a different
type of merchandise that appeals to your customer base, or use your space
to host weddings and parties on the weekends.

Sometimes an effort to pivot to eCommerce can backfire. Typically, physical

stores and digital stores will share inventory. And while you may keep them
in separate storage areas, if you sell out of an item online faster than in-
store, you’ll have to fulfill some of your online orders from your store
inventory. Unless of course, you’d rather ship to your warehouse first and
then ship to the customer — causing unnecessary delays and a poor
customer experience. To avoid this, invest in a POS system that automates
the exchange between online and physical inventory.
2. Lack of Data

Your small business is competing with cash-rich behemoths like Wal-Mart

and Starbucks. What do those giants have at their disposal? Data. Tons of
data.

Though your market is much smaller, you should still gather as much
information as you can. If you don’t have insight into the performance of
your business in real-time, it will drastically limit your ability to make smart,
data-driven decisions.

For example, you need complete visibility into the revenue you collect and
the expenses you pay. Without this knowledge, you are literally flying blind.
On the expense side of the equation, if you want to buy a new line of
inventory or make some updates to your storefront, you need to know how
it’s going to impact your bottom line. And it’s not just these expenses you
need to keep an eye on, but all of your costs.

As a business owner, you need to know what percentage of revenue you can
allocate to employee wages, utility bills, or rent so you can set proper targets
for cost savings. On the revenue side, you want your business to grow month
over month or year over year.
If you don’t achieve your goals, you may want to examine areas of your
business where you’re overspending — i.e., the expense side. To ensure your
expenses don’t exceed your revenue and turn your business into a failure
rate statistic, it’s helpful to know your net income.

First, you need to define your Gross Profit (GP) by taking the Cost of Goods
Sold (COGS) and subtract the number from the total net sales. If you’re
using a POS system like ShopKeep, you can find reports like these, and more
in BackOffice.

The second factor you’ll need in this calculation is your Operating Profit (OP).
To find the OP, you need to subtract your operating expenses (i.e., payroll,
rent, utilities) from your gross profit. If you’re using accounting software,
you’ll easily be able to retrieve this information.

Lastly, you have non-operating expenses. These are expenses that are not
related to core business operations like your operating profits, but rather
taxes or interest you may have on loans or cash advances. Non-operating
expenses are subtracted from your operating profit to yield your net income.

The secret to running a lean business is a long-term, ongoing strategy

that strives to eliminate waste to improve efficiency, agility, and quality of
business operations — all while maximizing value to customers.

While this seems like a contradiction, doing more with fewer resources, it’s
much easier than you think once you break it down into small steps. The
ideology of a lean business is built on the methodology of build-measure-
learn.
Build. The main idea behind build is that Rome wasn’t built in one day. Nor
was Google’s Gmail, Apple’s iPhone, or mega-retailer, Amazon. Businesses
don’t start out doing all the cool and fancy things they’re known for today.
For instance, Amazon started as an online bookstore, and now they deliver
groceries to your and provide streaming music services. The point is these
companies started with a basic idea, or in the business world, a Minimum
Viable Product (MVP) that they can introduce to the market.

Measure. Next, these companies measured. They measured the results of

the MVP during the experimental stage. How did the market respond to your
product or business? Did they react the way you expected them to, or was
the reaction the complete opposite of your hypothesis?

Learn. Once you have some reliable data measurements, you can then
determine which direction to move based on the results of that data. Have
you been right all along and now you have the data to back it up? Or did the
measurements provide you with some insight into areas you can improve?

To apply this to your small business, you need to go back and look at your
business plan. What are you trying to build? What are your goals? What is
the bare minimum you need to get started?

Whatever the outcome, know that it is backed by reliable data that you can
trust to help pivot your business in the direction that will help it be most
successful.

Operating a successful business is not something you can leave up to chance

or luck. It takes a clearly defined business plan, strategic operations, and
sound financial management from startup and throughout the life of your
business.

Real-time data dramatically reduces lag time between data collection

to data analysis, thus making your business more agile and responsive to
changing trends. And if there’s one thing every small and medium-sized
business has over big-box retailers is the innate ability to be agile because
they don’t have to cut through the corporate red tape to make changes. They
can see the data trends in real-time and respond accordingly.
1. Poor Management

We’ve finally reached the #1 reason why a new business might fail.
Entrepreneurs have power over their businesses, and with great power
comes great responsibility.

Management is partly about attitude and mindset — and it does have an

effect on your bottom line.

Sometimes small business owners become set in their ways when it comes to
doing certain things. This is especially true for veteran business owners. For
new entrepreneurs, make sure you don’t fall into this trap. And to be fair, it’s
not just business owners. It’s everybody. It’s human nature, and we are all
guilty of it at some point in our lives.

Assumption and complacency typically happen when a business is doing well

and fall into a false sense of security that your business is operating in the
best possible and most productive way. That’s precisely when fallacy swoops
in and wreaks havoc if you’re not careful.
These ten reasons should give you a solid understanding of how to turn
around a failing small business so your company doesn’t become a failure
rate statistic.

Why Do Small Businesses Fail?

8. The most common reason small businesses fail is that the
market simply doesn’t need their product or service.
(CB Insights)
In researching its small business closing statistics, CB Insights carefully analyzed 101
small business that closed down in order to determine why they failed. Researchers
found that almost half the companies (42%) on the list shut their operations down
because there was no market need for their products or services. This is the most
important condition for starting a business; no amount of marketing or investment in
technology can make up for it.
9. 29% of small businesses fail because they run out of cash.
(CBInsights)
Having a small business can be an expensive venture, especially if you’re just
starting out. According to small business failure statistics, nearly a third of
companies don’t make it because they simply run out of cash. This makes sense
considering that 67% of owners use personal funds to deal with their financial crisis,
which can become extremely costly in the long run. If we add to that a 2018
study showing that 68% of small businesses have an outstanding debt, we can see
how these problems escalate.
10. 23% of businesses fail because they don’t assemble a good
enough team.
(CBInsights)
A functional team of professionals is essential for every business. Of course,
assembling such a team is easier said than done. You have to take into
consideration different personalities, skills, and how they all work together. It’s no
wonder that statistics of small business failure tell us 62% of entrepreneurs choose
not to have any employees at all. This reduces costs and avoids the risk of
incompetence or laziness creeping into your business, but it also limits your
business’s ability to grow.
11. 14% of small businesses fail because they ignore their
customers’ needs, while the same number fail because of poor
marketing skills.
(CBInsights)
When you’re starting your small business, you need to know not only what you’re
selling, but also to whom you’re selling it. Getting acquainted with your target
audience is half the work. The other half is catering to your users’ specific needs.
The small business survival rate indicates companies that ignore their customers’
problems usually have a greater risk of failing. This overlaps with poor marketing
skills. After all, good marketing means adapting to the user-focused world of the
21st century.
12. 19% of small businesses fail because their competition out-
performs them.
(CBInsights)
Most of the time, having a good business idea just doesn’t cut it. You also need to
know how to present your idea, build upon it, and keep a keen eye on what your
competition is doing. Small business failure stats show that nearly a fifth of all small
businesses get beaten by their competition because they don’t pay enough attention
to their surroundings.
Whether you want to admit it or not, having a successful small business is a never-
ending race. You need to regularly check on your opponents to see if they’re using
any new techniques or implementing any successful strategies.
13. For 13% of businesses, disagreements between the workforce,
owners, and investors leads to failure.
(CBInsights)
We’ve already mentioned the importance of finding the right team for your small
business, with 27% of owners describing it as a major challenge. Of course, that
doesn’t relate only to employees. A high percentage of small businesses that fail do
so because of disagreements between the founders, staff, and investors.
To prevent this from happening, it’s essential to clearly define everyone’s role and
rights at the beginning so there aren’t any misunderstandings later on. The same
can be said for investors, who often have unrealistic expectations of what the
business can achieve.
14. 13% of small businesses collapse because they lose focus,
while 7% are doomed by their failure to pivot.
(CBInsights)
When your product is not delivering the results you expected, you might have to
consider a different approach or a new direction altogether. The failure rate of small
businesses shows there’s no shame in admitting defeat, especially if there’s a
potential success down another path.
Of 101 companies surveyed by CB Insights, 13% failed because they simply lost
focus, while 7% failed to make the necessary changes. That said, for 10% of
companies, pivoting actually turned out to be a major mistake.
15. According to small business failure statistics, 18% of companies
fail because of pricing issues.
(CBInsights)
Choosing the perfect price for your product can be problematic. It’s a double-edged
sword; if the price is too high, you’ll drive away potential customers and destroy
your reputation on the market. On the other hand, if you short-sell yourself, you
might not earn enough to keep your company afloat.
It may seem like a minor detail, but according to these small business failure stats, it
leads 18% of companies to ruin. Balance is the key.
16. 9% of small businesses fail due to unsuccessful geographical
expansion.
(CBInsights)
The success of any business depends largely on the owner’s ability to analyze the
market and see where his or her product fits in. This analysis is even more important
when it comes to entering an unknown area.
If not done properly, this step can be fatal. Indeed, failed expansion is a contributing
factor for 9% of businesses that go under. Geographical expansion can also cause
additional stress for remote teams due to communication problems and cultural
differences.
Small Business Failure Stats: How to Avoid the Death
Knell
17. 58% of business owners believe spending time with family in
the evening is crucial for their effectiveness at work.
(Business Wire)
Getting lost in the vast and complex world of entrepreneurship is quite common
among business owners, but it can also lead to copious amounts of stress. In turn,
this makes them less productive and efficient at work.
In a small business survey by Xero, more than half of business owners said it was
necessary to unwind with family on a daily basis to achieve maximum effectiveness
at work. Having a free weekend with loved ones every week is a priority for 53% of
business owners. Indeed, according to statistics on small business failures, 8% of
companies that fail do so because of burnout brought on by poor work-life balance.
18. 86% of companies invest in technology to improve their
productivity.
(Business Wire)
Small businesses that want to keep up with the competition need to invest in new
technologies and offer their customers a more user-friendly experience. For that
reason, 49% of businesses use mobile apps to connect with users. Another 32% add
a mobile payment option to ensure easy purchases. And in order to avoid becoming
a number among the small businesses failure stats, 26% of companies use business-
planning tools to make sure their productivity is at an all-time high.
19. Businesses that sell services rather than products have a better
chance of survival.
(Business Wire)
Xero’s research found that small business failure rates are a lot lower among
businesses that sell services compared instead of products. With a survival rate of
59%, companies that sell services have a much better chance of pulling through
than the ones that focus on products. According to the research, failed companies
mainly sold to individuals (49%), while only 28% of surviving businesses did the
same.
Q&A
What are the most common causes of small business failure?
Based on a survey by CB Insights, 42 percent of small businesses that fail do so
because there’s no need for their product or service on the market. Other important
causes include running out of cash, having a bad team, getting beaten by the
competition, and being unable to set the right price for their products or services.
What percentage of small business fails?
Research shows that 21.5% of small businesses fail after just a year. About half of
all small businesses make it to their fifth year of work, while only a third survive a
decade. Only 17% of full-service restaurants fail in their first year.
How can small businesses avoid failure?
The most important thing to do before deciding to start your own business is to
carefully analyze the market, examine the available small business failure statistics,
and see where your business might find its place. You need to come up with a
working business model, assemble a well-functioning team, and listen to your
customers.
https://fortunly.com/statistics/small-business-failure-statistics/