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Our second installment of ‘why small businesses fail’. If you missed the first, you can find it here. Unfortunately there are more than five reasons why small businesses fail, so if you’re brave enough, let’s look at another five reasons – so that you can understand and avoid them.

Your business is in the wrong location

If you do your research properly, hopefully this reason for failure can be avoided. So before you decide on a location, think about who is in the vicinity – are these people your potential customers? Be realistic: your trendy wine bar may go unnoticed if it’s in a part of town full of care homes and charity shops.

Are locals affluent or struggling to make ends meet? Do people spend time at this location or just pass through? Passers-by may notice a new business, but if it’s too far from where they live and work and your competitors are more local to them, chances are they’ll go to them instead. What’s the traffic like – and the parking? Are access and lighting adequate? Is there good support for local businesses? Is the area well-kept or dirty and rundown?

“Something as simple as traffic patterns and parking can make or break your business,” says Karyn Greenstreet, President of Passion for Business. “Make sure that you are convenient to your customers, and near to your suppliers and your employees.”

Your business doesn’t have an effective internet presence

“Not having an online presence will leave your customers thinking your business is stuck in the Iron Age. Failing to use online marketing means you will be missing out on a vast section of potential customers,” says Alison Curry-Taylor, Operations Director for Daily Internet. You’ll also be missing out on other ways to generate revenue from your website, such as affiliation and ad revenue.

Of course, these days an online presence doesn’t just mean a website, it means a presence on social media too. If you’re relatively IT-savvy but know little about social media, there’s a plethora on online advice about using social media for business. If you’re not IT savvy, then hiring an expert to get you started would be a wise investment – and the same goes for building a website. It’s your online shop window – even if you don’t sell products or services directly online – so make sure it looks good.

You’re hesitant about selling

Don’t be afraid to sell your business; customers and clients will only appear if they know you are there and your marketing has convinced them that you’re offering something they want. If you’re introverted and timid, running a business single-handed may just not be for you – this is no time to hide the light of your brilliant services and products under a bushel. What you say, write, broadcast and post must sell your products or services, because this (at the risk of sounding obvious) is how you make money; this is what will ensure that your credit card isn’t refused next time you head to the supermarket. Your profits are now your wage.

You rely on one income stream or a few regular customers

“Businesses that accumulate their profits from a single source are more susceptible to economic fluctuations and possible failure and are generally less profitable in the long term,” warns entrepreneurship expert Evan Carmichael. If you specialise in just one product, what happens when that product is usurped by something cleverer, smaller, neater or cheaper? When a big organisation with lower overheads starts producing something similar? For financial security, try to diversify – and never become complacent because you have a few customers putting in large orders, or returning regularly for your services, month after month.

If they disappear and you’ve put no effort into attracting new customers, your business could quickly run into trouble.

You Don’t Get Paid

Late payment can spell financial doom for your small business. “Lack of capital will destroy your business over time, lack of liquidity will destroy it in a heartbeat,” says business mentor and author David Mellor, “and accounts receivable is your biggest contributor to liquidity.” His advice to start-ups? “Devise a strategy that will facilitate being paid promptly, whether your clients are small businesses, multinationals, or public sector entities.” Don’t be afraid to get tough with late-payers – there are steps you can take to recoup delayed or unpaid payments. Read Top Tips to Tackle Late Payments for more information.

I’d love to say we’re done with the reasons a small business can fail, but there are a few more to come – so stay tuned.

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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