For many Kenyans, starting a small business and expanding on an idea is a dream. It can be tremendously fulfilling to be your own boss and establish something from scratch, but it's not always easy. You might have launched a boutique or small consultancy but that business closed before it was embraced by the public. Now you are back to the drawing board and don’t know where you went wrong. Being a small business owner may be very difficult and it might need a lot of effort and sacrifice, in addition to money and careful planning.
The best way to ensure the success of your business and avoid being one of the new small businesses that close shop within their first two years is by being prepared. To help you with this, we have put together reasons why your new small business might fail.
You've probably heard the saying, "You have to spend money to make money.”
In business, that is true. To get through every stage of business, you need enough cash reserves. You need enough capital, in the beginning, to keep your business afloat until it starts turning a profit. Your chances of success are low if you don't have enough funds to get you through the first six months or so before the business starts to generate revenue. When estimating how much money you'll need, consider taking into account both your personal and company expenses.
Whether big or small, almost every business has competition. Knowing your competition can help you make your products, services and marketing stand out. It can enable you to set your prices competitively and help you to respond to rival marketing campaigns with your initiatives. If you don’t know who your competition is and how they work then how will you set your business apart?
Here are some ways you can learn about your competition;
Another thing that can kill your small business venture is uncompetitive pricing. If you price your product or service too high you might scare away potential customers. However, if your prices are too low, that could be a negative thing too, your product or service might be in demand but you might not be turning a profit.
For example, let’s say you run a Milk ATM and what sets you apart from other Milk ATMs in your area is that you give twice as much milk as your competitors for the same price. Sure you might have more customers but you may be losing more money than you are bringing in. Try finding a middle ground with your pricing.
If your business depends on foot traffic, then having your business in the middle of nowhere may be a bad idea. Consider renting a space with a lot of foot traffic but if the business space is extremely pricey that can be counterproductive to your business especially if it is still in the pre-profit phase. Think about the market demand in the area where you’re located, and how easily your customers will be able to find you. The location you pick for your business venture may make or break your business. Where you set up shop determines factors like the target market, attitude to your brand, and accessibility of resources like skilled labor. When picking a location, consider what you think is the location of your customers.
Read Also: How to Start a Business Step By Step
Business growth can be hampered in many ways, external factors like growing inflation and unrest in the economy are but some of the factors. Even if you have little control over these occurrences, you can influence how your business reacts by being quick to adapt to shifting circumstances.
For example, you might respond to inflation by adjusting your pricing as a business. Another way your business can deal with inflation is by reviewing your current expenses and seeking opportunities to reduce waste and improve efficiency. You could also consider expanding into related industries as a way of exploring new revenue streams. For instance, if you run a salon, you could incorporate other aspects of beauty in addition to doing hair, you could do nails and facials.
Small business owners may overlook the importance of bookkeeping in the initial months of setting up a business because the numbers are “manageable.” This may hurt your business in the future. Growing a business requires knowing how much money is coming in and going out. If you don’t know your cash flow, it makes business growth extremely difficult. Businesses need bookkeeping for several reasons, including creating accurate budgets, preparing for taxes, keeping organized records, setting and monitoring business goals, tracking expenses and ensuring compliance with legal requirements.
Poor entrepreneurial skills may lead businesses to waste resources. As a small business owner, you may be utilizing more resources and time than required because of a lack of business and financial management skills. It’s difficult to create a budget and not overspend on irrelevant projects without having some form of financial management know-how.
Getting your business registered and licensed may help micro businesses establish themselves legally as well as build trust with their customers. The procedure may be costly and take a long time to complete due to delays. This may discourage the entrepreneur and stunt growth.
Avoiding the problem won't solve it, one thing you could consider doing if you decide to get a license and registration for your business is to plan ahead. Conduct research on the registration process in advance to understand the steps and possible obstacles, knowing what's ahead might help you stay calm and patient even if you encounter obstacles.
Almost every business needs capital to get started but sometimes it can be difficult to access funding even with a great idea. This lack of capital may also hinder your ability to cover your day-to-day operations and cater for things that cost money on an ongoing basis like rent or salaries. The inability to get funding can also inhibit your business's ability to purchase assets and resources needed for expansion.
Consider alternative modes of funding like getting loans from family and friends or dipping into your savings.
Starting a new business venture comes with its ups and downs. However, even when you start off well, keeping a business up and running successfully is not for the faint-hearted. Many new small businesses face problems that prove to be insurmountable, leading to business closure and failed dreams.
It doesn’t matter what stage your business is in, you may face a number of challenges that could lead to failure of your business if you don’t address them appropriately. There are a lot of factors that could contribute to the failure of your business but they are also strategies that can help you succeed. Proactively identifying these factors and ways to overcome them is crucial to supporting the continued growth of your small business.