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Salt Lake City Bookkeeping Blog

Why Most Small Businesses Fail

Posted by Matt Roberge on Nov 5, 2014 7:00:00 AM

Small Business FailureYou can read a ton of articles about small business failure. This Forbes articles gives 5 great reasons why 8 out of 10 small businesses fail within the first 18 months. You can come up with all sorts of reasons for why businesses fail. However, I'm going to take a broader more general outlook on small business failure. I have been pondering lately why so many small businesses fail and think I have it down to just three general reasons; time, money, and knowledge. These three reasons are not necessarily why a business fails but rather why nobody starts their business correctly from the very beginning. 


When you ask a small business owner what is keeping them from growing many will blame a lack of time. A lack of time is the one of the most piss poor excuses for not succeeding in business. Why is time a bad excuse? Time is the only thing on this entire list where we are all on a level playing field. We all have 24 hours a day, 7 days a week and 365 days a year. The difference is some people are willing to work harder or longer. However, good business owners work smarter and know how to make the most of their time. 

When a business owner tells me that they don't have time for a certain task I think many want me to be impressed. I think many want me to respond "wow you must be crushing it!" While I may say that the reality is I'm actually feeling bad for you because I don't think you know how to scale a small business

Don't use time as an excuse for failing; we all have the exact same amount of time.


Many entrepreneurs let money stop them from succeeding in business. Have you ever had that great idea but you never did anything about it? Then a few months or years go by and you see your exact idea rolled out. You slap yourself in the forehead, "hey that was my idea!" Yeah unfortunately for you someone actually got the guts together, put in the time and launched the idea. 

Some entrepreneurs are not comfortable with money. Some people can't even talk about money and that is a huge barrier for them. There is plenty of money out there that small businesses can access. Don't be put off by the fact that you don't have any money; I typically always recommend that you use other people's money. If your idea is good enough people will fund you but they won't do it for free. You will most likely have to give up some equity in your business or put up some collateral. If you are not willing to give up equity or put up collateral then you probably won't be very successful at raising money for your idea

Lastly, I want to talk about money as a barrier for general living expenses. Most people have expenses and they don't have sufficient savings to launch their idea and meet their current financial obligations. They typically have a great idea but they also have a good paying full time job. That leads most people to attempt moonlighting their small business. While this can be an effective approach it can also fail. Moonlighting your business often leads to burn out or a competitor beating you to market.

Get comfortable with money. Don't be afraid to ask for money. Use other people's money. Dial in your elevator pitch for potential investors or banks.

Knowledge and Experience

There are just certain things you are not going to learn from a text book or a blog. I'm a firm believer that failing in business can help you succeed. I was preparing a speech for the Missoula Entrepreneurs Club last week and was almost certain I was going to be asked what my biggest mistake was. So I started making a list of all of the mistakes that I have made over the course of starting and then running my small business. I basically lit the keyboard on fire with a fury of typing and before I knew it I had 10+ mistakes written down. Everyone makes mistakes and sometimes you need to crash and burn, learn from your mistakes and adjust your future actions. 

After I finished my list of mistakes I tried to pick out the top two and then I bolded them. My big mistakes that I bolder were: no detailed documented processes (which is the key to scaling) and focusing on sales first instead of operations. Many business owners will agree that you should be concentrating on working on business processes. However, most won't agree on the latter. What I'm trying to say here is why would you sell someone on a product if you don't have the operations machine to bck up the incoming sale?

Much of what you lack in knowledge and experience can be combatted with two simple steps: outsource your weaknesses to professionals (or hire internally for your weaknesses) and seek a business mentor. Outsourcing certain aspects of your business to a professional can benefit you in many ways. First, you are most likely going to save a lot of money over hiring internally. Second, you are most likely going to get a much more experienced person at a fraction of the cost of hiring internally. 

At some point you are going to run into a scenario in your business where you don't know what to do. Facing a tough business situation is the perfect example of where having a solid small business mentor or coach can be beneficial. Many people don't know that many successful small business owners are willing to mentor for free, it never hurts to ask.

Make up for lack of knowledge and experience by outsourcing your weaknesses to seasoned professionals and seeking a strong business mentor. 

There are a million reasons why small businesses fail. Recurring things I see are a lack of time, money or knowledge.

Why do you think the majority of small businesses fail?

Reasons to use outsourced bookkeeping

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Topics: Small Business Growth, Grow Your Business, Scaling A Business, Business Start Up, Business Failure