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Common Reasons Small Businesses Fail

Small business tends to make up a huge backbone of the capital in America. However, so many small businesses fail more than anything else and there are many reasons why and many of them are so common amongst themselves. It would be easier if the owner researched why businesses failed and took extra precautions to make sure nothing happened like that to them. Here are some very common reasons on why small businesses fail so much and break under the pressure of bigger businesses. There are many reasons I will discuss like employee treatment, recruiting, economic trends, company capital, compensation, competition, and employee performance. Each one of these things discussed can have a significant effect on a small businesses bottom line. These are all things one should think about before starting a small business.

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Why do Small Businesses Fail?

One of the biggest reasons and a good source of most problems in smaller business tend to be the owners themselves. Sometimes owners make a business because they just want to do things their own way and keep it how they want it to be. Sometimes owners are just to set in their ways to try and look at change. Many are just too greedy, precautious, or even just paranoid about everything that goes on around them and their business. Everything to many managers or even owners have to be dealt with by them because they should know everything that is going on. Micromanaging is never really a good idea in the first place. But it isn’t just that, sometimes even just dysfunctional managing skills can lead to a great downfall. Many want a family business and have family work well with each other, which is always a bad idea. Everyone even says it is a horrible idea and yet many still do it! Sometimes standards fall down, or even just no planning for what is to come in the future from the management (not just the manager, but in general managing) can happen. There are so many flaws in many areas of owners or managers/management that every little detail has to be looked upon before starting anything.
The biggest thing that causes businesses to fail is simply the one thing they are trying to make, money. Money is the root of almost all causes and most of the time it just boils down into it. Sometimes it is basically that there is not enough demand for the product or service there to open up something like that. Or even trying competing with bigger business in the region, it tends to be hard to compete with all of it. Sometimes there is a good reason they fell down the drain. One reason why some businesses fail is that they grow out of control and can’t keep up with the growth at all. Sometimes they try and move into different areas that are not as profitable, or borrow money that just isn’t there to keep a particular rate of growth going. With all of that going on, there could be no backup plan if something fails. If everything is put into one area then there is no cushion to fall back on. If something bad was to happen, like a new competitor or a lawsuit, then the entire company would be swept off their feet and unable to keep up with the demand of cash. Thus the company would have to foreclose or go bankrupt in order to at least keep their family afloat. Even with the times like now simple little things can make a huge difference in profit and affect the people around them. Like paying too much for rent or even labor of their employees. The bigger companies tend to have the advantage in this area simply because they have a system worked out already on how much to pay for rent and how much they know they are going to pay employees. Many smaller companies simply lose their competitive edge against others and just sell the place rather than work out new terms with others. One of the last things that happens with money that is out of anyone’s control is the market declining for whatever purpose the store is made for or the service is being used for. Generally with changing times companies have to go with the flow and offer what most of the populace wants for their buck. Bigger companies can do this on the fly because of the expendable resources they have. Smaller companies will have that adjustment period if they decide to and sometimes will not be able to keep up and fail.

Another problem Small Businesses commonly face is employee retention. Many small companies can’t compete with large companies when it comes to getting new employees. It’s not just salary, it’s benefits the small company has to provide as well. It’s tough out there for small companies to have a competitive salary, 401K plan, and provide health insurance. It’s quite expensive with all of the new insurance regulations that have come into play under Obamacare. Also, employees quit everyday for several different reasons. It takes a lot of time, hard work, and effort to get a qualified employee to fill a void needed within a small business.

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Big companies vs. Small Companies

Smaller companies do make up a huge part of the market in small town areas across middle America, they are pretty much everywhere so you really can’t make that generalization but that is what I think of when I think of a small family owned business. There will always be people who want that “at home” feeling or not to go to the big companies for their own reasoning. If smaller companies watched their backs and kept double checking themselves on mistakes and costs, maybe they could grow bigger or even be able to compete better with others. Another thing you have to keep in mind with some small businesses is they have limited resources due to stagnant economic conditions having to do with where they are located. Large companies don’t have these types of issues, they are able to add and let loose employees at their own discretion. Many large companies implement KPI’s (Key Performance Indicators) into an employees performance report and they tend to know if they are getting a good ROI (Return on Investment) for the employees they do hire. It’s too bad that many large companies have such a competitive edge over smaller companies. There are exceptions to the rule here, but they’re far and few between. Often times, if a large company sees a smaller company that is doing exceptionally well they will try to acquire it. There are many examples of this, look at what Apple just did with Beats. Other examples include when Hershey company bought Krave Jerky last year and so on.

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