An economist writing for the CBC in September of 2012 said that 50% of new business start-ups will fail in five years. With that said, here are some of the reasons we at GMS believe they do.
You need to know much more than what your business will do or where it will be located. There should be a detailed written business plan that includes:
Starting up for the wrong reason
Some people start a business simply because they believe it is the gateway to riches. This usually leads to disappointments and they quickly pack it in. Assess the following when considering a business start-up:
Lack of Capital
Some entrepreneurs think they can make profits from the start, spending most if not all of their resources immediately only to find out later that they do not have enough capital to fund successive business lifecycle stages. This is where a proper plan will come in handy as every possible cost would be considered to ensure there is enough funding when required.
I don’t believe there is anyone who has not heard these “three” words, location, location, location. You should consider your target market and their habits, as well as the direct competition in the area.
Small business owners usually come into their industries with little knowledge of handling the multiple facets of a business such as financial management, marketing, employee relations yet still believe they can take care of business. Get good advice as the devil is in the details and only the professionals know the details.
You can have an excellent business plan but it will amount to nothing if each objective is tackled lethargically or with incompetence. Well thought out hiring practices and training are critical to avoid this.
Small businesses need to market their brand considering the touch competition they will face from established players. Additionally they should think less about the mass market and start obsessing on a niche. The natural thing is to go after the mass market because it feels harder to fail, but this is not so, it could actually be a shortcut to the “showers”.
Poor Stewardship of Funds
No business runs without cash so it is of utmost importance that entrepreneurs practice strict financial record keeping so that every penny is accounted for. Having a good handle on exactly how much money is going into and coming out of your business is priceless information for making decisions.