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Reasons Why Small Businesses Are Failing

According to statistics revealed by the Science And Economic Development Of Canada, thousands of small businesses are exiting the marketplace in Canada every year. Approximately 96% of small businesses with an employee strength of 1 to 99 manage to survive for the entire year with 85% surviving for three years and 70% going higher up to five years. Approximately 7000 businesses are filing for bankruptcy in Canada every year.

A slightly lower rate of business failure has been observed in micro-enterprises which just have one to four employees. 70.4% of microenterprises survive when compared to 66.9% of small businesses of other variables.

Why Are Small Businesses Failing?

Lack of experienced management is one of the prime reasons for the failure of small businesses. The managers of small businesses which file for bankruptcy lack the knowledge, experience, and the vision to manage their businesses. However poor planning is attributed to the failure of small businesses as well. Small businesses are failing because the entrepreneurs who begin the business commit a number of errors which are as follows:

Small Businesses Do Not Conduct The Research Required

The lack of research is one of the main reasons why small businesses are failing. Entrepreneurs are investing in a business because they are interested in a particular field or just love specific products. Small businesses are destined for failure when proper research is not conducted to understand whether a genuine market for the products or services being offered exists. Entrepreneurs need to get into the activity of research to understand this factor without which their business will be a potential candidate for failure.

Entrepreneurs Do Not Bother To Sort out Money Matters Initially

Entrepreneurs need to figure out the kind of capital needed before beginning the small business. They must distinguish between the sum of money needed for their livelihood and manage their business effectively. They cannot afford to ignore or assume that the money needed will flow in every month and also keep a close eye on the bills they need to pay. Entrepreneurs who do not have a financial cushion to fund their fledgling business must arrange adequate business financing after taking into account all expenses. This is something which they need to work out initially to ensure their small businesses do not end up as failures.

Small Businesses Often Choose An Unfeasible Business Model

Small businesses can consider themselves doomed to failure if they have not chosen a feasible business model. A lot of small businesses are trying to sell their products or services without considering answers to whether they have chosen a feasible business model which can be operated. Owners of small businesses must consider the feasible viability of their business if they do not want the enterprise they establish to head towards a failure.

Planning for Growth And Understanding How to Handle Success

Investing money in small businesses without planning for growth will be an error small businesses cannot afford. A number of small businesses have succeeded immensely during the first two years of operations but have nevertheless failed because the entrepreneurs could not handle the success or just did not have the energy required to continue with their business. Small businesses must be prepared for such eventualities with plans of hiring the staff they need to manage the business or even consider a new partner to ensure the business moves forward and doesn’t get left behind to stagnate.

Planning An Exit Strategy

Owners of small businesses put tremendous efforts when establishing and building successful enterprises. However, most do not have any plans about what will happen to their business after they are no longer capable of putting in the effort desired. When asked about it they simply consider selling the business which in most cases is just an expectation without being an exit plan. Small businesses need to have a certain value by itself without being dependent on the talents of the owner. In these cases, the owners will be required to put some effort to make their businesses salable after working hard to ensure its success.

Small businesses fail regularly simply because of poor planning. Such instances can be avoided if the entrepreneur spends some time understanding the different stages of planning before establishing the business. It is just a matter of educating themselves before beginning the procedure to invest in the small businesses they are looking forward to establishing.

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