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Two Mistakes That Kill Small Businesses

Updated: Sep 24, 2020

According to Small Business Trends there are two primary reasons why small businesses fail.


Reason #1: 42% of businesses fail to properly research the true market need for their product and service. In other words, they overestimate how much demand exists for what they are selling. This is a common mistake, often attributed to the lack of unbiased and detailed market, competitive and consumer/customer research.


Reason #2: 29% of small business end up running out of cash, having failed to properly forecast their cash flow and income.

60%+ of small businesses fail because they overestimate the market need for their product/service, or because they fail to properly forecast their cash flow and income.

However, recent findings by Kabbage, a small business lender, offer some positive news as well:

  • 1/3 of small businesses were funded with less than $5,000, and 58% of them got started with less than $25,000.

  • 26% of business owners pursued entrepreneurship because they wanted to be their own boss;

  • 23% because they wanted to pursue their passion;

  • 19% because the opportunity presented itself.


When it comes to the main reasons for failure, 42% of owners fail because of a lack of market needs; 29% due to lack of cash and 23% because they hire the wrong team. 19% get outcompeted or face pricing/cost issues and 17% because of un-friendly product or lack of a business model. Poor marketing and relationship with costumers also have an impact on 14% of unsuccessful ventures. 


Three Steps that Increase Your Chances of Success

Looking at these numbers, we can't help but once again stress the importance of developing a proper business plan before you launch your business. Specifically, there are three things you can do to ensure your plan is solid and your chances of success increase.

Whether you work with us to develop your plan and financial projections, or on your own, follow these guidelines to maximize your chances of success.

First, make sure that the plan you write is unique, bespoke and includes market, competitive and end-user research to validate the demand for your service and product. Do not fall into the temptation of copying and pasting an online template that you can then submit to lenders or investors. While it may get you funded, it won't make you successful.


Second, develop a business model canvas to understand how your business will operate. We offer a complimentary template here.


Third, ensure that you have solid financial projections that help you understand when you can expect to become profitable and how you can accelerate your path to profitability. Typically, these projections will include:

  • analysis of required start-up funds

  • fixed expenses analysis and summary

  • revenue projections

  • cash flow analysis

  • at least 3 years of projected accounting statements to help you understand your path to profitability.


To your success,

BizPlanShark

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