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4 Types of Small Business That Have High Failure Rate

4 Types of Small Business That Have High Failure Rate

Why do small businesses fail? There are many factors to take into account on why small businesses fail. Sometimes it is the business owner or entrepreneur that gets in the way of their own business. Is there an abundance of demand for your business? Supply isn’t the key to success, it is demand. Supply, of course, is needed to feed the demand if there is one. Rapid growing of the business to unprofitable areas can cause failure. Sometimes the less is more theory comes into play with a small business. 

Making wise decisions when its comes to accounting is very important. Make sure your accounting is accurate, that is a whole mess of things if you’re numbers are off. Even if you have to hire someone else to do it as long as it is done right. Always have a cash cushion available. You never know what kind of financial crisis your business can find itself in. When borrowing is no longer an option and you have no extra cash coming in or competition has come into play your business can suffer greatly and even worse, fail. 

Be original and advertise your business as something special and not like the others. Before starting your business think of the location, cost of rent, utilities, maintenance, materials, and labor these factors alone can make or break your small business ventures. Make smart management decisions and keep it professional. Many businesses have failed due to partnership issues, family disputes, and dysfunctional management. 

Have a plan for management and keep your standards. If there is a lack of motivation or encouragement in management it can damage the whole team and company as a whole. It is said that fifty percent of small businesses fail will fail in the first year alone and if they do not fail in the first year around ninety-five percent with fail in five years. There are a few small businesses in particular that have a much higher rate of failure than any others. That list includes restaurants, retail stores, direct sales, and construction. There are more small businesses that tend to fail. These ones just have a higher rate.

Failure of a Restaurants

Many people have a dream of opening up their own restaurants, but a sad truth is that many fail within the first few years. The restaurant industry is competitive and always changing. Restaurants that are started with the inexperience more that often will fail. When opening a restaurant someone working needs to have some sort of knowledge as to how the business works. By the time the owner realizes this it’s too late and they are in over their head. The lack of accounting skills as discussed before can crush not just the a restaurant but any business for that matter. small business failure rate

Taxes are nothing that need to be toyed with. Proper accounting is key to any successful business. In the restaurant business the knowledge of the costs of labor, costs of ingredients and the demand for certain dishes are needed to account the total costs. Many people do not think about the costs and end up running out of food or end up throwing food away. Be careful to not overspend on food and other items.That is equal to throwing money down the drain. Poor customer service is an issue when it comes to failing restaurants because even if the food is good who is going to want to return if the service sucks. 

Now if the food is bad then no one will want to come back. Quality food is key and sometimes dishes in a restaurant become routine and then just becomes a quantity instead of a quality item. The Location is also key when it comes to owning a top notch restaurant. Is the restaurant visible, have enough parking, and can people walk by? Ask yourself these things prior to deciding on a location. Finding a niche and not offering too many items on a menu is key to success. It leaves room for growth and doesn’t make it hard to have all items on hand. Research before opening a restaurant, it’s not as easy as it may look.

Retail Stores Closing Fast

The statistic states that eighty percent of retail stores go under in the first five years. Retail stores have tough competition. There are ever changing styles and trends to keep up with. You want your business to appeal to consumers but to also stand out. Don’t appear mediocre, advertise your business the only one consumers need to stop at. They have to stand out and market themselves effectively. Location is key for a retail store needs to be in a shopping hot spot. 

Location needs to be in a convenient easy to see location. Now the rent in the desirable hot spots tend to be more expensive that other location. With that being said make sure the items in your store are of good demand and catch consumers eyes. Customer issues can trouble your business with bad reviews. People count on those reviews and share them on social media. You want to make sure the customer is always right and eradicate any issues that you have with them. People remember excellent customer service and will want to come back to have that same type of experience again.  Retail owners need knowledge in buying and managing inventory. 

It is important to know when and how much of what to buy for your customers. Visual display is key with retail. Before entering a store people window shop and the window displays need to be able to pull the consumers. Poor display of merchandise and visuals won’t draw in customers into the store. Give the consumers a first look at what your business has to offer with advertisement such as posters, commercials, and social media. Now that online shopping is becoming more prevalent using social media tactics can get consumers out and drift away from the laziness of online shopping.

Direct Sales

Direct Sales are companies that allow someone to create their own business using their products. Companies like Mary Kay, Thirty One, Pampered Chef, Tupperware, and It Works. These companies tend to draw in customers that in turn usually become direct sales consultants. These companies are known as multi-level marketing companies (MLMs). In order for this type of small business to succeed you need to know people that need and have a demand for the products you are offering. Trying to urge customers to try and purchase these items can be difficult. You need to market your products carefully and wisely. small business failure rate

Most people cannot make a living doing this type of work but they will use it as an additional source of money and usually just to be able to purchase the products they want using their profits so they get the products for free. These companies make it look so easy for someone to become their own boss and at their own expense. Most of the time the consultants lack the motivation and knowledge of being a good sales representatives. You must know your product in and out and have a sales pitch you can use repeatedly. 

If you can’t sell products then you won’t be able to buy more products to sell and if you already purchased the merchandise you are now stuck with merchandise you have purchased and therefore not ahead financially. Even those who do work as consultants full time do not usually make enough money. Being organized is key to being a sales consultant. Have all your products organized ready to go and any catalogs ready for possible customers. Some of these multi-level marketing companies provide training and others do not. You will need to be a people person willing to host parties at various locations where you will have to drive setup your product display then pitch to the party guests and a lot of times people just go to the parties to socialize and not to purchase anything. Making this a difficult and trying profession to get into. 

I have tried myself to be a consultant but like many others it was at my own expense and it did not work out. The problem I encountered was having the correct clients and people willing to use and try new products. Since the company was a skincare and cosmetics company many women were set in their ways with their daily routines. My demand was too low and supply slowly diminished as did I as a direct sales consultant. Testing out your products and getting people to switch to your product when they have been using theirs for years is not an easy task. You have to fully engulf yourself into being a consultant to be a good one. It’s not a job for everyone but if done right it can bring you some success.

Construction Company Troubles

As the years go by construction companies have had an increased failure rate. In the first five years it is said that only thirty-six percent of construction companies stay afloat. For those construction workers that have the education, skills, craftsmanship, and quality of work it can be difficult to be good at a job but not have anywhere to show their handyman skills. When the housing market starts to go down so does construction work on housing. Some companies will be owned by one skilled carpenter and then hire workers beneath them to save some money.

 This could affect the quality of work produced and then that company will lose its credibility. A lot of times construction companies fail due to the lack of business ethic and training on the business. Many former contractors and workers turn into project managers. The project managers will set a price needed and try to budget range for the clients (the people hiring the construction company). Knowledge on how to budget projects is very important to consumers. If the budgeting is inaccurate it would make the construction company appear to be unreliable and just out to get money. Consumers will recommend constructions companies who are fair, knowledgeable, and create fine work. Construction companies work a lot by word of mouth and you want those words to draw in possible consumers. The DIY trend also makes is harder for construction workers to find jobs. Everyone wants to create their own home .

Small Businesses Have Higher Failure Rates

Small businesses are more likely to fail because they are in competition with the superstore industries. New business owners can get overwhelmed and not realize how much it takes on all different levels mentally , physically, and emotionally. Restaurants seem to close as soon as they open. Retail stores struggling to stay a Take all the time to broaden your knowledge about your business, how to start, a business and how to maintain that business. Get the proper training on how to be your own boss. Before creating your business take a look at what it is going in the area where you want to start your business. small business failure rate

A foolproof management plan and a plan to educate the staff for on the job training are all needed as well. Have cushion for when the supply and demand change. It can change for the better, where you will have to purchase/make more of your product.  If the demand goes down use that cushion you have saved in order to cover expenses that may come up. 

When working in retail be the advocate for the customer and create marketing plans that will draw them in. It is not simple task to say I want to start a company and for it to last. It takes many hours of careful planning and saving money to create that cushion for the hard times almost all businesses encounter. If you truly have a passion for the restaurant, retail, direct sales, or construction business don’t let this change your mind just know the facts and start off your small business on the right path to success.

Scott Carver
Scott Carver
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