WHY DO SMALL BUSINESSES FAIL AND WHAT CAN THEY DO BETTER
A business cannot call itself one, until and unless it actually faces the day-to-day hardships that come with establishing and setting up a business. Be it a huge multi-million dollar corporation or something as small as a “Kirana Shop”, the challenges faced by them are the same. That brings us to the major difference between a small business and a large business. Small businesses are those privately owned corporations or partnerships or even sole proprietorships, that have a small scale of operations and a minimum number of staff under it. Essentially, what makes a business small, is its eligibility and ability to apply for support from the government enabled MSME schemes, as well as qualifying for special and preferential tax grants from the said government.
What differs or separates a small business from a medium sized or a large corporation is that fact that even though they face the same challenges, the magnitude or scale of these challenges faced vary. What also varies, is the ability of a small firm to stand up to those challenges and conjure up necessary resources to sustain itself during these hardships. Hence, in this blog post, I aim to understand and analyze why and how small businesses tend to fail and whether they can avoid failure and move towards a more sustainable business model so as to individually benefit the owner as well as the national economy.
The most common challenges for small businesses begin at home:
- UNDER CAPITALIZATION
The number one, most common reason for a business to go bankrupt is that they start out with extremely poor financial and expansion planning, rather than economic conditions. Small businesses underestimate the amount of money they require to actually begin and sustain a startup even for the first year. A small business should have access to a sum of money that is more than, or atleast equal to the expected expenses plus the projected income from business for the first year. Small businesses largely fail to properly estimate this expenditure and end up adding to the financial burden of their businesses even before they have begun. - ENTREPRENEURIAL MYTH
One of the major myths that small business owners abide by is the fact that if a person is an expert in a certain field of study or trade, they will also be an expert in running a business in the said field. Business owners do not have the additional business skills required to run a business that is required over and above the expertise in that field of trade. In today’s day and age when every second person has a small business, the only thing that will ensure you sustain is having an holistic knowledge of managing a business to ensure that your business goes through the 5 stages of the corporate life cycle (birth, growth, maturity, revival, and decline) rather than remain stunted at the birth stage. - INVENTORY MANAGEMENT
Imagine that you have a fully operational business, a steady customer base and suddenly, your stock is over, inventory levels fall to zero and you have a bunch of customers whose needs are not fulfilled.
One of the major reasons for a failed business is lack of inventory control and management. The opportunity costs of losing out business due to no inventory is very high since it not only has a negative financial effect, but also leads to a loss of customer footfall. Mismanages inventory are usually called “Silent Cash Flow Killers”. - REFUSAL TO ADPAT TO CHANGES
We all have watched at least one episode of shark tank and one of the major reasons business do not do well and end up at the show for funding is because they think of their business as “My Baby”. They are so attached to their businesses that they refuse to accept any sort of change, however important the change may be to boost business and ensure sustenance. Owners are so stubborn with the ways in which they run their business, that they almost always overlook the changes in consumer behaviour, changes in the technology ( Inventory management, customer database, etc). It is important to find out your hot selling products and ensure their availability even if its not a product you believe in.
The list of challenges are endless, and they are mostly issues at the home front, let alone the economic conditions that affect the business. A business owner must do a SWOT analysis, even if it is the simplest one of a small piece of paper.
A business owner is not necessarily a Businessman. What makes a business owner a business man is his/her ability to turn challenges into opportunities and stay afloat even when other business around them are collapsing.
SO WHAT TO DO TO SUCCEED?
- RETAIN YOUR CUSTOMERS
Keeping existing customers should be a priority for small businesses, especially because at such a small scale of operations, the customer loyalty and switching costs are very less. A customer retention policy will atleast ensure a stead flow of income and might even lead to an increase in new customers through positive word of mouth. Small business owners should understand that acquiring new customers is way more expensive than retaining an existing customer. - STRATEGIC PLANNING
Perhaps one of the most important metric for a business to adhere to, to accomplish in its endeavour is to have utmost strategic planning in terms of factors of production. Which means management of staff, how many to hire, who to hire, etc. Management fo capital, i.e calculating how much capital will be required to atleast sustain for a year. Thirds, is inventory management, do not order inventory just because you THINK you can sell it. Plan your inventory levels in advance.
In conclusion, a business, be it small or large, will always face challenges. What matters is how a business owner sticks to his strategic plans and ensures it has resources to sustain beyond five years.
BUILD A BUSINESS 