Top 3 Reasons Small Businesses Fail

MH910216374Starting a small business is completely high risk, however  when you are in the midst of planning, the excitement of entrepreneurship leads you to forget that you could inevitably fail. The Small Business Bureau (SBA)  published 2010 statistics which showed that only half of all new establishments survive for the first five years and only  one-third survive for 10 years or longer. Though numbers have shown that  business closures as a whole have decreased, knowing that only fifty percent of businesses survive can be troubling to a new business owner. The best way you can help your business is to understand the mistakes of other small businesses and ensure you find ways to avoid them.

The SBA also references reasons why small businesses fail. There are several they discuss such as
poor location, poor inventory management, and unexpected growth however I wanted to discuss the top 3 reasons that I have experienced.

Lack of experience

When you start to plan out a business that you have been researching or even dreaming of for years, you do not fully understand what it takes to get the business going. You may have the proper knowledge of the field itself, in our case the ever so changing clinical background, however you may lack managerial or administrative experience required to run the business itself. There are corporate documents to be filed, permits to obtain, complicated regulations to integrate into your processes, and so many other rules that you had no idea existed in the first place. It can be overwhelming and easy to look past but this will ruin your business if not done correctly. How do you avoid all of this? Create a business plan. You will see this in every small business article or book that you read. It is essential that you plan out the framework of your business so you can understand its needs. It is a lot of work and completely time consuming but it is all necessary. The following should be included in your business plan:

  • Executive Summary – Summarize the type of business you would like to start and discuss the reasons; this should show that you have given this deep thought and you are ready to take next steps
  • General Company Description – Describe the mission statement, company goals and objectives, and business philosophy
  • Services – Describe the type of services being provided and a description on your competitive edge
  • Marketing Plan – Define your market segment, market trends, sales forecast, barriers to entry, customers, competition, strategy, pricing and location
  • Operational Plan – Define how you intend to operate and describe the regulations that need compliance
  • Management and Organization – Define the roles required to operate
  • Financial Plan – Define your break even analysis, income statement, balance sheet, statement of cash flows, financial statement analysis, and key ratios.

Insufficient capital

This is probably the biggest reasons why most businesses fail – money. As mentioned above, it is important to plan out your company’s financial future. As you are operating, it is easy to just see what needs to be paid in the near future. But costs add up and there are so many to consider. When creating your financial statements make sure to plan out your break-even point so you can see how long it will take for your business to profit.


This is especially true in the healthcare field as competition strikes at every corner. How do you differentiate yourself to patients or referral sources who probably know absolutely nothing about you? First, understand your competition. Research competitors and understand what they did right and what they did wrong. Use that to your advantage and find ways to stand out from the rest. This goes smoothly into your marketing plan. Market your business in strategic ways. Passing out fliers may work for grocery stores but all businesses are different. Find the best ways to market your company and do it consistently otherwise you will be just another annoying marketer.

In addition to this, the SBA also provides small businesses with great information on how to start a business.

Small businesses are still on the rise so if you do plan on starting one, start if off right. Remember to constantly reevaluate the needs of your business. It starts with the birth of your business and should occur regularly throughout its existence.

Any other tips you can suggest?