Why Do So Many Small Businesses Fail

If you're looking to buy a business, you have no doubt heard from concerned friends and family that the only reason it's easy to find a business for sale is because small businesses fail so often.  While it is true that many business ventures fall flat long before they have a chance to grow, knowing those pitfalls can empower you to avoid those same mistakes, turning buying a business into buying a secure future.

Mirror, Mirror

While there are times where circumstances are truly beyond an owner's control, the fact is that it is rarely the bank, the economy, the consumers or any other person's fault but the owner's when a business fails.  A business owner can and should evaluate his or her business with an honest outlook, and that includes focusing that lens inwardly as well.  Many owners are combative with those looking to help and may be prone to either never taking risks or taking too many.  This common failure is easy to avoid when you buy a business by keeping an open mind and looking for ways you can foster self-growth rather than being critical of others or shutting out advice.

Crunching Numbers

Another area where small businesses fail is in where their numbers clock in. This can range from supply and demand to labor costs. A business owner who cannot evaluate the numbers will quickly go into the red.  If you are not mathematically inclined or have little experience in budgeting, finance, and cash management, you would be wise to find someone who is knowledgeable in these areas to assist you in these key areas.  With business mentors available and financial specialists a call away, there's no reason to forgo this investment.  While it may take some start-up capital, having someone available who can show you the ropes is an immense boost to your chances of making it through that critical first year. Once you've got a handle on the way your business ought to look, you can always opt for handling things solo later on.

It Takes a Village

The people you hire in your business are as important as your product, and if they do not share your vision, they will swiftly run your company into the ground. Particularly as small businesses grow, business owners cannot attend to every matter that comes up, instead relying on their staff to handle problems and escalate matters in need of greater attention. However, not every worker is dedicated to stellar customer service or maintaining core company values, and if that employee is a manager, it is even less likely that you will ever hear about it unless you do some investigation of your own.

While those searching for a business for sale might be apt to look for something to grow up and turn over as quickly as possible, any business owner should take the time to observe and communicate with all levels of the company. An open door policy not only makes employees feel valued but can stop problems with higher tiers before they drag the business down.

Nest Eggs

Buying a business is already an investment, but you will also need to find ways to save money through those first few years in the event of a catastrophe. Economic recessions can hit a modestly performing business hard enough to close the doors. For small businesses especially, one customer can represent a significant portion of the company's earnings. That makes creating a cash cushion even more vital in the event that a critical customer withdraws.

Because you cannot anticipate the future, avoid overextending yourself by doing too much too quickly.  Small businesses can easily double in size each year, and you will experience growing pains during this period. Plan for that level of growth, and set a budget for each quarter that reflects everything from materials to employees, but err on the side of caution, leaving enough room in your budget for unforeseen circumstances.

Creating a Better Bottom Line

Buying a business can be intimidating even for a seasoned investor, but with a place you can turn to for advice, even a first time entrepreneur can make solid choices through that critical first year and beyond.  While many small businesses do fall prey to lagging sales and a vision that went beyond its capabilities, you can keep turning a profit year after year by avoiding these pitfalls.


Owning your own business can be a risky proposition; however, with proper planning, hard work, and guidance one can be a successful business owner.   As the old adage goes, it pays to “measure twice and cut once” – do your homework before buying a business – think carefully about what type of business you buy, its location, demand for those services in your market area, etc.   Careful pre-planning is critical to making sure you make the right investment.   That coupled with the operational advice above can help you make good decisions and be a successful business owner.  We wish you all the best on your quest for the perfect business for sale.   Start your search by searching businesses for sale in your City.  You may also want to seek an experienced business broker to help you find the right business to buy – search our Business Broker Directory to find a broker in your area.
  • Author: Matt Maxwell
  • Date: September 06, 2013
  • Category: Good Info for New Buyers & Sellers