Beating the Odds: Why So Many Small Businesses Fail (And What You Can Do to Avoid It)

Before the end of the first year of business, 30% of new businesses fail. Beyond that, 50% fail during the first five years and before the ten-year mark, 66% are set to fail as well.

Why do so many businesses tend to fail before they can get their feet underneath them? Is it something we have no control over or is it something that we as business owners can strive to do better?

Keep reading to learn more about the reasons why small businesses fail and how you can avoid falling into these traps.

Lack of Business Plan

The first thing we’re going to talk about is the lack of a business plan. Your business plan is a vital part of your company. It should be one of the first things you start to develop as you curate ideas.

In order to develop your own strong business plan, you need to take the time to do some research and planning.

Who are your core customers? How are they going to do their shopping? How are you going to market?

Your business plan needs to clearly define what your nature of business is, how you’re going to achieve that, and what sets you apart from the others.

That’s right, your business plan also needs to include the aspects of your business that make you unique.

If you’re in a shoe selling business, how are you going to set yourself apart from the other shoe stores of the world? What’s your angle?

Make sure you have a clearly defined idea of what you want your business to be before you jump in head first.

Ignoring the Customer

Another pitfall many small businesses fall into is not engaging with their core customers enough. Today, social media sells. And the days of sticking to Facebook are quickly fading into obscurity.

If you want to avoid alienating your customers you need to find where they’re hanging out and go there. More companies are flocking to Twitter, Instagram, and even Snapchat to market their businesses. Because if your core customer base isn’t on Facebook anymore, you shouldn’t waste your time there either.

You also need to get very good at taking feedback from your customers. Give them a way to tell you their thoughts and feelings about your business and then really take them into account when making decisions. You want your brand to feel personable and likable, and people like to feel heard.

Improper Management

It may be a truth that’s hard to swallow, but sometimes businesses fail because they aren’t managed properly. If you don’t have good management skills, you’re going to struggle as a leader and your business is going to suffer because of it.

You have to get good at making decisions about how to manage your business. If you have a staff to supervise, you will have to learn how to make hard calls that may cause some emotional responses.

If you’re running this business with someone else, you need to get used to the idea of having a difference of opinion with people who have just as much of a stake in your company as you do.

If you are dysfunctional in the way you run your company, every aspect of it is going to suffer. If you fear that you may not have what it takes to run a business, that’s okay! Not everyone is born with a suit and tie on.

There are plenty of classes and training seminars you can take that can help teach you how to organize your thoughts and your life and make good management decisions so you can succeed.

Careless Inventory

A business needs to be careful with the way it handles inventory. All too often companies over- or under-buy the things that they need to make their business work. This means that at the end of the day either the customer is unsatisfied or your bottom line suffers.

Right from the start, you need to get good at knowing what you have, where you put it, and when you need to buy it again. Keep all of this information on hand and update it frequently.

You also want to make sure that you’re taking care of the inventory you have. Nothing’s worse than eating a loss because you were careless with your storage options.

Failure to Keep Good Records

If you’re struggling with your inventory, there’s a good chance that the rest of your records aren’t in tip-top shape either.

If a part of your business is sick or suffering you could have a hard time figuring that out if you aren’t keeping good records. How do you know whether or not you have a cash flow problem if you don’t know how much cash is flowing?

In order to set yourself and your business up for success, it’s crucial that you track everything. Any piece of data that seems relevant needs to go somewhere so you can study it down the line and learn from it.

This includes things like how much cash is coming in and going out of your business. But you should also track other things like how many hits your website is getting, what products seem to be your customer's favorites, and what marketing channels work best for you.


When a business starts to do well, it’s natural to want to watch it grow. And growth can be a good thing. However, too much growth too soon can spread resources too thin and cause a big problem for small businesses.

Before making the move to expand, it’s important that you spend some time really studying your data and numbers to ensure that you can actually afford to do it. If it looks like you might have a problem generating leads or cash flow for the expansion, consider waiting until you’re a little better suited for the growth.

Falling into Complacency

That said, falling into complacency is another surefire way to have the interest in your business fizzle out before it sparks a real fire. While it’s a good idea to play it safe when it comes to expansion when it’s time to make that jump you need to jump in full on.

Don’t be afraid to let your business grow in smart, profitable ways. As long as you’re keeping track of your numbers and you have the revenue to spread out a little, growth is only going to mean good things for you in the end.

Overcome the Main Reasons Why Small Businesses Fail

There are many reasons why small businesses fail so soon. And while it might seem a little intimidating at first to start, as long as you’re smart about your money and you’re a competent, confident leader, you’ve got a good chance at creating something amazing.

For more information about starting or running a business, contact us today.