Why most small businesses fail?
By Kudzanai Vere
The reason behind running a business is making a profit. In order for this profit to be realised, there is a hodgepodge of activities that are required to be done in a certain way that most small businesses tend to ignore. I know most businesses are being started as the only way of getting a living as the unemployment levels have reached unprecedented levels but what is key in sustaining any business is to stick to the rules of the game.
Having started your business out of circumstances or situations, it is incumbent upon you to develop deep interest and learn adequately about your area and become a pro. I normally say your passion should graduate into your purpose and then profession, this will enhance your stay in the business arena and reduce your chances of failure.
I will discuss issues that I have picked as major contributors of failure in most small businesses.
- Lack of internal controls
Recently I met one of my inaugural entrepreneurship masterclass graduate and asked her many questions regarding her newly founded business. She explained how the shop was almost run down by workers. They were almost out of business and had to sell their only car to bring back the business to life. She decided to have her relatives man the shop thinking that they might safeguard and at least manage the shop well as relatives.
The above scenario of employees pilfering stocks and money is rampant in most small businesses chiefly due to lack of adequate internal controls. Even if you put a relative, son, mother or grandfather as till operator or manager, these are not going to stand in for an internal control system. They are also human beings capable of being tempted into conniving.
What are internal controls? Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. You need to put in place systems and procedures that clearly explain how all tasks should be executed so as to achieve the overall company objectives. You need to have adequate checks and balances in place to be safe.
An effective internal control framework has five major components which are, control environment, risk assessment, control activities, information and communication, and monitoring. I will talk about these in my next article.
2. Absence of passion
Failure to establish an emotional attachment with your business often leads to premature departure from the busines. Like I said earlier on that most people are forced in some sort of business by the current harsh economic environment that has for some time now failed to provide employment opportunities. So, many people are forced into buying and selling some staff for survival. Most of these have never dreamt of doing this any single day of their life but that’s the new normal and reality on the ground that they should strongly tune into.
Once you find yourself in such as situation, you need to develop interest in that area of your business and find joy in doing it. It is only when you get interested in what you do that you can innovate and find better ways of doing it. An internal drive and self motivation that is derived from passion lacks in most small business owners. You can even tell from the way the business is done that this person is not serious.
3. Failure to improve self and systems
For sustainability in any business set up, be it small or large, there is every need to continuously improve self and the business systems. Bombard yourself with new information related to your area of business and be in a position to apply it.
I know of many large and small companies which closed shops due to failure to adjust and adapt to market and environmental changes. Therefore, it is imperative for all small businesses to quickly learn and adjust to new models and business systems in order to remain afloat.
4. Lack of business intelligence
We’re living in an information era. The one with current and relevant information and capable of putting it to good use survives. Lack of business intelligence information has made some small businesses ineffective and less competitive in the marketplace. Once you become less competitive, you’re on your route to closing shop which is undesirable.
Business Intelligence is a set of processes, architectures, and technologies that convert raw data into meaningful information that drives profitable business actions.It is a suite of software and services to transform data into actionable intelligence and knowledge.
There are other important factors which contribute to small business failure but these are the most critical ones I have shared in this article.
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The writer, Kudzanai Vere is a sought after voice in the areas of practical entrepreneurship, personal development, leadership development, organization development, financial literacy and business management. He is an entrepreneur, author and transformational speaker. Vere is the author of the best selling books Becoming a person of impact and Exceed beyond the ordinary among others. He is the Founder & CEO of Kudfor, Founder & Director of Programs at Transformational Mindset Institute. He is famed by his practical approach to business and entrepreneurship coaching.
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