Common Reasons Small Businesses Fail within Their First Year

Getting a small business off the ground requires a tremendous amount of dedication, expertise and capital. Unfortunately, despite having no shortage of ambition, many new business owners wind up having to close their doors within a year of opening. In some instances, this is due to factors outside of their control. However, in many cases, the blame can be pinned squarely on shortsightedness and rookie mistakes on the part of proprietors.

Failure to Obtain the Proper Licenses

Operating a business without first obtaining the proper licenses can result in a plethora of disastrous consequences. At the very least, you’re likely to incur fines and be forced to close your business until such time as the licenses you need have been obtained. However, depending on the type(s) of license(s) you’re operating without, the consequences may be more severe and include permanent closure of your business and serious legal charges.

So, before proceeding to open your business, take care to educate yourself on all the licenses you’ll need to legally operate and make sure to obtain them. Fortunately, this process is often uncomplicated in municipalities that utilize high-quality government software systems.

Lack of Location Research

Depending on the nature of your business, location research may be the most important part of the preparation process. For instance, if you’re opening a business that’s dependent upon foot traffic – like a store or restaurant – it makes sense that you’d seek out a location that would prove beneficial to an establishment of this type. So, no matter how in love you are with a certain retail or office space, take some time to conduct proper location research.

Is there ample demand for the type of business you’re looking to open in this area? If so, how much competition do you have? Which of your competitors is most successful – and why? All of this information will provide you with a clear picture of how beneficial a location is likely to be to your business and help prevent you from committing to a lease in an inopportune locale.

Failure to Screen Prospective Hires

A business is only as good as the people it hires to represent it. As such, it’s imperative that small business owners put genuine thought and effort into their respective screening processes. For starters, you’ll need to look at someone’s work history to ascertain whether they have an experience that’s relevant to their desired role. Of course, depending on the position being applied for, experience may not be a huge factor.

With an applicant’s permission, you should also have a look at their criminal background. Although past convictions shouldn’t necessarily prohibit someone from being hired, it’s important to take the nature of the crime(s) into account. For example, if an applicant has been convicted of crimes that could jeopardize the safety of customers, employees or your business as a whole, it’s probably best to move on to other candidates.

You’ll also need to contact any references that applicants provide. Unsurprisingly, previous employers, landlords and other people with whom an applicant has maintained professional relationships tend to be more reliable sources than friends and family members – at least in this instance. Since some applicants are likely to bank on you not getting in touch with their references, contacting them can be an effective way to thwart the efforts of dishonest applicants. Just remember – no matter how good a gut feeling you get from somewhere or how well they present themselves in an interview, you should still seek the input of references.

Lack of a Workable Marketing Strategy

While word-of-mouth is often an effective vehicle for spreading the word about small businesses, it shouldn’t be your sole means of promotion. So, before opening your doors, identify your business’s target audience and the types of content and outlets – both digital and traditional – that are likely to connect with them. If your marketing experience is minimal to nonexistent, enlisting the aid of an experienced marketing agency may be a worthwhile investment.

Given all the hard work that goes into opening a small business, it’s only natural that proprietors would want to see their enterprises thrive. Unfortunately, considering how many small businesses go under within their first year, it’s clear that success isn’t always in the cards for fledgling business owners. So, if you’ll soon be opening your first business, it pays to understand some of the most common reasons for which businesses fail.

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