Here are some reasons why small businesses struggle:
- 79% struggle because they start with too little money.
- 78% struggle because they lack a well-developed business plan, including sufficient research on the business.
- 77% struggle because they didn’t price things properly, or failed to include all necessary factors when determining prices.
- 73% struggle because they were overly optimistic about achievable sales, money required, and what they need to do to be successful.
- 70% struggle because they don’t recognize, or accept, their weaknesses and don’t seek help from others.
When you started your small business, you probably weren’t instantly generating sales or revenue. Startup costs vary depending on your industry, but you probably had to layout a fair amount of cash for things like securing your location, purchasing equipment and inventory, or other materials.
As you got established, you probably watched your monthly expenses grow, just to keep your doors open. Then, you start making sales—a lot of sales—and on paper, you appear to be profitable. On paper, you’re generating enough revenue to cover your expenses, and then some. But when you go to pay your bills, there’s a disconnect. You’re short.
Here are 6 common reasons you might be struggling, even though you’re profitable on paper
- The lack of planning
Sometimes you get lucky. Some businesses are so well connected and funded that they don’t have cash concerns. But most businesses do, and they benefit from careful, meticulous, and strategic planning. Research shows that companies that do business planning grow 30 percent faster.
Your business plan should be a Lean Plan, meaning a short, useful tool that you review and revise regularly. Use a business plan review meeting each month to review your financials—how are your sales tracking against your sales forecast? How is your cash flow compared to what you thought it would be? Make sure your plan is realistic and built on current and accurate information, and that you have created SMART goals and milestones to help you stay on track.
- Expanding too soon
One of the major reasons businesses fail to make profits is because they make the mistake of expanding their operations before they’re ready.
Slow yet steady expansion, on the other hand, can lead to better, more sustainable growth. It’s hard to believe that too much business can lead to failure. While it’s tempting to go for it all, steady, predictable growth that’s properly managed is healthier than uncontrolled jumps and spurts in volume. By this, I don’t mean that companies should postpone or repress their growth. However, businesses need to ensure that they’re able to meet increased customer demand in a timely manner, without breaking down existing systems.
- Poor inventory management
Typically, retail and ecommerce business owners buy large amounts of inventory with the goal of selling everything at a profit. However, if the products don’t sell as well or as quickly as you projected, you can find your profit margin in a downward spiral. You might find that your products are losing value, or even becoming obsolete.
Businesses are then forced to either sell them at steep discounts or discard them, tying up large sums of money in all the unsold inventory. Poor inventory management can lead to shortages and overages, both of which can spell doom for a business’s profit margin. The problem of inventory imbalance is common and often underestimated. Businesses that don’t understand their sales patterns can easily make this mistake. Businesses, regardless of their size, will do well to invest in inventory management software or a point of sale (POS) system to track their inventory. You can use a POS to generate detailed inventory reports, identify sales patterns and trends, and highlight the best and worst selling products. This way, business owners can track their best-selling items as well as the demand levels, and stock inventory accordingly, thereby incurring minimal to no losses.
- Lacklustre online presence
When Airbnb launched, the founders couldn’t even afford to pay rent. Today, however, the story is completely different. Now, they report that they have 6 million listings worldwide and that they’ve facilitated more than 500 million stays and a total valuation of $35 billion. A large part of this achievement comes from Airbnb’s business model, supported by their solid online presence and digital marketing strategies.
Remember to update your social media and website content on a regular basis to keep it current. You can use these platforms to engage with customers, showcase your offerings, and announce new releases, special offers, promotional contests, and business milestones. Ask your customers to leave reviews on your website, social accounts, or even review sites. When potential customers view these online reviews, it will be easier for them to trust your brand.
- They don’t anticipate or react to competition, technology, or other market changes
Assuming what worked in the past will always work is dangerous. Businesses that don’t factor in market changes, their competition, changing technology, or the value of experimenting with new ideas are likely to struggle.
- They think they can do everything on their own
One of the biggest challenges for entrepreneurs is to let go of control and rely on others to finish the job. When entrepreneurs fail to let go and seek help from others, their businesses can fail.
While business growth is great, slow and steady wins every time. You may be experiencing one of these common causes right now in your small business. While it’s not an easy or pleasant situation to be in, there are things you can do to turn things around and make a successful comeback.
Changing your mindset, believing in yourself, and looking at these tough times as learning experiences will help you climb out of the rut.