Every big corporation today was once a small business or maybe a medium scale enterprise.
Examples abound of big and multinational corporations that started in kitchens, garages and basements.
However, for every big company that made it or for every small and medium scale business that survived, a lot more fell by the “road side”.
What is responsible for this? Why do some or maybe few small and medium scale businesses survive and most die?
While some may attribute it to luck – good or bad – there’s got to be more to it.
In reality, there are factors and mistakes responsible for the failure of many small and medium scale businesses.
The reasons small and medium scale businesses die early are:
1. Lack of Knowledge and Experience in the Chosen Line of Business
This is very common among small and medium scale business owners. Most times entrepreneurs and small business owners go into businesses without proper and adequate knowledge and experience required to make the business a success. For example, an individual who decides to operate a car wash business must first arm himself or herself with the necessary and required knowledge to make the business a success.
To achieve this, the individual can attach himself or herself to an already established car wash to understudy and understand the car wash business for knowledge and experience.
2. Poor Management
A poorly managed enterprise seldom survives. A poor management system or practice is one of the reasons why small and medium scale businesses die early. When a small business disregards the principles of management, it is only a matter of time before it goes under.
It is important that the small and medium scale business owner or entrepreneur understands the basic principles of management so that he/she can be able plan, organize and effectively control the business.
3. Financial Constraint
The success of every business depends largely on the availability of cash. Lack of adequate cash and financial support can cause the failure of a business. For instance, a small and medium scale manufacturing operation needs cash for the purchase of raw materials and the servicing of machines and equipments for production, and the payment of wages without which the operation would be grounded.
So, any entrepreneur that want to start a business must first ask him or herself if they are available cash or not. And if no, then what is the plan to source for cash?
However, there is always the need for entrepreneurs know where to get finance from especially if they are in Nigeria.
4. Wrong Business Decision
It takes one wrong business decision for a business to go under. As a small and medium scale business operator, the entrepreneur or business owner should endeavor to make right and accurate business decisions at all times to prevent the business from dying early.
Decision making is one important function which the small business owner cannot delegate.
He/she should possess the required skills and competencies to run the business of his/her choice.
This also underscores the importance of knowledge and experience in the line of business the person decides to go into.
Competition is also one of the reasons why small and medium scale business die early. Most small and medium scale businesses operate in environments where competition intense and fierce and this affects the odds of the business to survival. This can be most noticed in industries or sectors where there is little or barrier to entry.
When the competition possesses better skill and technical competence it affects the small business owner in the short to medium term. Also, when competition has a more solid financial backing and background it can engage the small business owner in price wars through lower prices of goods and services. This can frustrate the small business owner and if care is not taken the business could fold up.
6. Stealing and Fraudulent Activities
The small and medium scale enterprise can die early when it is bedeviled by stealing and other fraudulent activities. This can happen when employees of the business engage in fraud, cheating, stealing, poor treatment of customers and other activities that undermine the integrity of the business.
7. Poor Business Location
There is a saying that location is everything. For a small and medium scale enterprise to stand a chance of survival, adequate attention should be paid to the location of the business. A business
should be located where it can easily be reached by its customers as this would result in high sales and revenue which would enable the business to grow and expand.
Here you have it. These are some of the reasons small and medium scale enterprises die early. As a small business owner, ensure you do not form part of the statistics. We want to see your business grow from the basement to the corner office and from a start-up to a blue chip.
See you at the top!