Statistics show that 28 million Small Businesses make up 99.7% of the total firms in the USA. This means Small Businesses are kind of a big deal in the country. But, the problem is only 40% of these small businesses make a profit.
Now if you’re part of these Small Businesses and want to join the ranks of the successful 40% read on to find out some of the common business pitfalls and how to avoid them. Although the following 4 mistakes cause a large number of businesses to fail, not every one of these is inescapable. Let’s focus on the mistakes that can be easily avoided.
The first and most common mistake Small Businesses make is having poor cash flow management.
82% of businesses fail because of inconsistent or insufficient cash flow*. Although this statistic is scary, there’s an easy fix for this: Manage your cash flow and draw up a dependable forecast for expected revenues against costs.
Anyone can forecast their cash flow situation with this easy template we provide but it is important to be realistic about the data you enter. Entering inaccurate data will only make the forecast inaccurate, and this will not be beneficial to anybody.
After you understand your available budget, your every decision will be an informed one and you can avoid cruising right into failure. Furthermore, understanding your budget will enable you to manage your operational costs, and subsequently your cash flow.
Secondly, small businesses that offer a product or service that is unnecessary, fail.
42% of small businesses fail because their product or service is irrelevant or doesn’t solve any problems of its audience*.
Here’s a golden rule to avoid this pitfall: before you start your business, ask yourself these 3 questions:
- What makes my product or service unique?
- Which problems do I solve for my audience?
- What can I offer that is different from my competitors?
Only begin your business if you can provide valid and substantial answers to these questions.
Here’s another golden rule to follow it up: Don’t kid yourself, even if you do, your audience won’t be fooled. Another thing to remember while trying to avoid this pitfall is the importance of assessing your audience. Look at the size of your potential audience to determine whether you have the chance of earning enough revenue. If you’re unable to determine this, don’t jump headfirst into the deep. Remember the product or service you offer should appeal to more than just 3 people on a dot of an island in the Pacific.
Thirdly, not knowing what your business model is can lead to failure.
Let’s simplify this for you; do you know what your plan is to make profits in your business? How do you plan to make money? For example, in its initial days, the business model of Microsoft was to sell software for $120 apiece, although it cost them only fifty cents to manufacture. Now this is a great business model!
What’s your business plan? Is it working for you?
To answer these crucial questions and avoid failing in your business, check out our Business Model Canvas. Completing the exercising on this link will help you determine whether it makes sense to keep running on your business model. If the exercise tells you your current business model isn’t’ quite working, it’s time to change course!
Operating on a business model that doesn’t serve you only results in running into roadblocks. And left unchecked, this can even cost you your business.
Finally, not having a marketing plan can cause your small business to fail.
14% of small businesses fail because of poor marketing*. Having a marketing plan simply means having a road map to reach your customers. Without a map, your product or service can get lost in the market.
It is important to ask yourself this question when you have decided to launch a product or service to the market:
- Firstly, who is my audience?
- Secondly, how do I intend to reach them?
Knowing your audience, knowing what they like and where they spend their time is important. With this information, your marketing plan includes
- Planning to invoke the attention of your audience
- Drawing up material to engage them once you have their attention
- Having marketing strategies to convert visitors and browsers into customers and subscribers
When you understand the basics, marketing is quite simple.
For more insights on marketing and achieving business success through marketing, sign-up for our newsletter and get notified when my book ‘Roadmap to Marketing Success for Start-ups, Product Launches, or Career Changes’ is launched.
(Footnote: The US Small Business Administration (SBA) defines Small Businesses as companies with a maximum of 250 to 1500 employees, depending on the industry they are in. These businesses could be privately owned corporations, partnerships, or sole proprietorships, it doesn’t matter which.
They are also labeled ‘Small Business’ by how much they make; a maximum of $750,000 to $38.5 million, once again dependent on industry specificity.)