Small businesses are a major part of the economy, yet many fail to make it past their fifth year of existence.
According to the Small Business Administration, companies of this size make up 49.2 percent of private-sector employment, but many fail in the first few years due to a number of mistakes.
1. Not understanding the financials – When someone starts a business, they need to have a wide knowledge of various areas, including finances. One of the biggest mistakes small-business owners make is not understanding finance, and in some instances, this can lead to them going out of business. No matter how much knowledge a person has of an industry, not understanding the numbers can be detrimental.
2. Failing to properly protect themselves – Another important aspect of small business is having the necessary insurance coverage. For example, liability insurance can provide assistance if a company is ever sued due to an injury that took place on their property. Without this type of insurance, small-business owners could find themselves facing a significant lawsuit they are forced to pay for out-of-pocket. Most companies of this size are unable to handle such events, and they can lead to them going out of business.
3. Rapid growth – Believe it or not, growing too fast can actually sink a small business, as in some cases they aren't prepared to handle the additional demand. It would be much better for a company to see growth at a sustainable pace than at a rate that leads to un-meetable demands.
4. Starting a business with inadequate capital – To begin a small business, people will need to bring a certain amount of capital with them. Failing to do so could lead the company to go under pretty quick. Generally, in the beginning stages of a business it goes through some growing pains, and without enough capital, a company could struggle to make it through. To ensure they have enough capital, small-business owners should ask themselves questions, such as how much production costs will be and how many employees will they need?
5. Assuming your product will sell itself – Marketing is an essential part of any small business, as the word needs get out about the product. Going into it with the belief that a product will sell itself is a sure fire way to fail. With that said, small-business owners need to have a comprehensive marketing plan to ensure customers are aware of the product.