Starting a Business - 10 Reasons Why Small Businesses Fail to Thrive
Kathy, a skilled massage therapist, called me to discuss
what she needed to know to start her own massage therapy
clinic. She had been in the industry for over ten years,
and was very skilled at working with her clients.
She worked for another clinic and felt she was ready to
start a business of her own. However, like many want-to-be
entrepreneurs, she possessed the technical
skills—massage therapy—but possessed little
business management experience, and no self-employment
experience.
For many want-to-be entrepreneurs, discovering why
businesses fail is a smart research project. It helps to
uncover personal weaknesses, as well as begin to build up
inherent strengths before investing in becoming
self-employed.
It also helps them better understand the dynamics of the
industry they will be competing. For example, if
competition is intense because of a large number of massage
therapists in a geographic area, we can expect that there
will be less market share per clinic, downward price
pressure, and lower profit potential; this makes for
difficult going, especially in the start-up phase of the
business.
Following are 10 reasons why small businesses fail to
thrive. If you have an existing business, it might help to
determine why your business is not growing.
1. Mistaking a business for a hobby. Just because you love
something does not mean you can successfully convert it
into a business. Too often we feel others share our
passion, and we bank starting a new business on it.
Research your business idea and make sure it is viable.
2. Poor planning. Yes, you must have a business plan. It
can be a 3-page plan for the simplest of businesses or a
40+-page plan for a more complex business opportunity. The
point is you are prepared to focus on your business' goals
and vision, and you have a good idea of what you need to do
to put your plan into action. By going through a
business planning exercise, you also may have unearthed
what problems may arise, and how you are going to handle
them, if they do. In addition, financially can you launch
the business? It takes a lot of time to build a business;
60% of business start-ups fail within six months after
opening. Lack of cash flow and undercapitalization is the
culprit.
3. Entrepreneurial excitement. Entrepreneurs often get
excited about new ideas, but are unable to determine if
they have a "true opportunity". Part of an effective
business strategy (here is the business plan, again) is
determining which markets you will and will not serve, as
well as what products you will or will not offer. Before
deciding to undertake a new business activity ask yourself,
"Do I have the time and skill to implement this?"
4. Risking everything on one endeavor. Too often, small
business owners will have just one product, one service, or
one big client. However, what if this one thing
disappears? Diversification will allow you to ride the
flow of ebbs and tides in business.
5. Poor record keeping and financial controls. You must
review your revenue and expense records each month—,
and understand what they mean! Accounting is the language
of business. If you do not know how to speak it, get help
from someone who does.
6. Poor cash management. A good rule of thumb is that you
can live for one to two years without income when getting
started because new businesses are usually slow to get off
the ground. If you have created a business plan with a
realistic budget, you will already have determined what I
have just written!
If your plan shows you earning a high income in the first
six months, it may be a good idea to go back and review
your budgets.
7. Poor time management. Putting off tasks you do not
enjoy will sink your business fast! We get into a business
because we love massage therapy. However, have we thought
about all the other things that go along with running a
business, like bookkeeping, banking, sales, and marketing
activities, talking with accountants, attorneys, dealing
with customer problems, collecting receivables, and slow
cash flow? Getting help with administrative tasks that eat
up your time is a sure-fire way to spend time doing what
you do best—developing new ideas and revenue for your
business.
8. Ineffective marketing. Learn the basics of marketing
and track the success or failure of each technique you use.
Dump ones that are not working for you in three months
time.
9. Ineffective sales techniques. Once you have generated
interest in a client, how are you going to convert them
into a sale? Understand the basics of selling; take a
class, read a book; get some professional help.
10. Entrepreneurial burnout. Owning your own business
requires a huge investment of time, money, energy, and
emotion. Are you ready to ride the rollercoaster of the
highs and lows associated with each of these items? I can
guarantee you, it will happen! Motivation and creativity
can suffer in the most challenging times, and a pessimistic
attitude may prevail.
Be sure to schedule time for yourself. Take time off from
your business. It will help you manage the ups and downs
of entrepreneurship, and give you fresh perspectives.
As Kathy and I ended our counseling session, she made a
list of areas where she needed to grow, and created a task
plan. With planning and an objective look at both your
personal and your business' strengths and weaknesses, you
can be successful.
© 2006, 2008. Bonita Richter and Profit Strategies.
All rights reserved.
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Bonita L. Richter, MBA, founder of Profit Strategies,
http://www.profit-strategies.biz (for FREE tips on how to
craft the successful business you desire, visit
http://www.Profit-Strategies.biz ) teaches entrepreneurs
and business owners how to start and grow businesses,
attract more clients, and market their businesses to
increase sales, business success, and generate wealth.
