Starting a business was scary and something I avoided doing for years thanks to all the news articles out there about why small businesses fail. It seemed like failure in business is practically unavoidable.
Just recently, there was a blog post full of reasons why small businesses fail and how a product like QuickBooks can help.
I can tell you this from personal experience of having been a business owner for 1.5 years despite having NO accounting degree or finance background, so take what you will from it…
Whether you use QuickBooks or Xero or Excel for your small business, it doesn’t matter.
There was another blog post full of statistics with the claim that small businesses should be aware of such figures, but then half the post ended up being about DEBT vehicles for starting a business.
Ugh. You don’t need debt to start a business. It IS possible to start with your own cash and grow from there.
Also, small business is NOT risky, assuming you aren’t taking on debt OR taking money from people AND you aren’t making a bunch of claims you can’t reasonably achieve.
If you’re starting a side business, start simple by posting a message on Facebook and ask for referrals. BOOM. Done. Not even a penny spent on marketing. Oh yeah…and you can use Google Sheets (also free) to keep track of your income and expenses for your side business.
So why do I think small businesses fail?
Well, I think that it’s certainly NOT about the tools or the automation or or delegation.
Reason #1: Sales
You need to sell people stuff. It does not matter if you’re B2C or B2B. You have to learn to sell. Sales is one of three skills you need to keep the cash flowing into your business.
Reason #2: Marketing
You need to sell people stuff, so you need to put your stuff in places where they can find it. So you need to learn how to market your products or services. “Build it and they will come” is a great approach to marketing if you’re selling unicorns…actual living, breathing unicorns, but it won’t work for anything else.
Reason #3: Finances
You need to manage your cash flow in such a way that you generate a profit. Basically, you need to learn how to spend less than your business makes so that you can pay yourself for your hard work AND have money left to reinvest in marketing and sales to grow your business.
Even if you aren’t a sales or marketing whiz yet, your business has money that needs to be managed, even if they’re just expenses today because your business is total new. Managing money in a business is WAY HARDER than managing personal finances.
So my theory about why small businesses fail boils down to this:
People own small businesses. Since most people can’t manage their personal finances, they fail in their ability to manage their business finances, too.
It stands to reason that if you can’t manage money in a single-entry system like your own personal finances, your problems will be amplified in the double-entry accounting system for your business.
Before 2015, we were TERRIBLE at managing our personal finances. Just take a look at the page where we used to track our debt payments.
Once we learned how to manage money and how to pay off debt, we focused on reducing our expenses and increasing our income.
Sure, it sounds pretty straightforward, but since most people are in debt (and many die in debt), I think most people who are like us and really have no idea how to manage money. Averages Joes with car payments and mortgages who think they’re doing well because everyone else is in the same boat.
And then some of these folks decide to start businesses because they hate their jobs and want to quit, except that their personal finances haven’t changed. These folks aren’t ANY better at managing money BEFORE they start their businesses, so why would they be any better at managing their finances AFTER they start their businesses?
In our first year in business, we had a TON of expenses because we were trying a bunch of fancy tools and things we thought we needed.
As a result of our high expenses, our profit for the first year was minuscule.
So for year two, we cut back on the fancy tools and we’re focusing more on top-line revenue.
Automation, delegation, and the tools to facilitate our work are for year three and beyond.
The only real measure for success in business is profit, so we’re always monitoring our profit (and that’s simply revenue minus expenses). We track where the money is going and where’s it’s coming from so that we remain profitable.
So let’s say that you’re in debt and you want to make extra money so you can pay off all your debt, quit your job, and travel the world running a small business from a laptop.
Is a side business walking dogs the business of your dreams? Nope. You want that laptop lifestyle, right? But you’ve got to make extra money and get out of debt TODAY, so dog walking can be a great way to start.
Whether you love it or not, a side business in something like dog walking WILL teach you how to manage money for a business. Plus, you’re getting out of debt faster because of the extra money you generate. Win-win situation!
So how can more small businesses be successful?
Here’s my unsolicited advice since it seems that too many people want to talk about why small businesses fail and not enough about how to help small businesses be successful.
Tip #1: Budgeting
Start a budget for your personal finances to help you spend less than you make. While you’re at it, create a budget for your business, too.
It’s where we started. It’s how we’re able to save money each month in our growing emergency fund. And it’s how we’re able to run a profitable business.
Tip #2: Accounting
Learn the fundamentals of accounting so you can track your business finances.
Our accountant offers start-up businesses a special rate for the first meeting to help them get started and set up their books. I can’t imagine he’s the only one who does this, so if you’re thinking of starting a business or you have questions about starting a business, find an accountant familiar with bookkeeping and the tax laws for your state/country/region.
Tip #3: Market Research
Figure out what you want to sell and who you’re going to sell it to.
Market research will save you from opening a food truck that sells hot dogs in a town where there are already 27 food trucks selling hot dogs.
Market research will also tell you if there is is a shortage of dog walkers. Consider reading Will It Fly? from Pat Flynn (Amazon aff link). Last time I checked on Amazon, Will It Fly? was $12.86 (US), so that’s a lot cheaper than sinking hundreds of hours and thousands of dollars into a business idea you haven’t fully vetted.
Tip #4: Marketing & Sales Training
Learn how to market and sell your stuff to your target audience.
Also, keep in mind you’re networking all of the time, so strive to build relationships with every single person you meet. You aren’t going to figure out 100% of what you need from the day you decide to open a business, so these relationships will help you start and grow your business (and theirs, if they’re business owners themselves).
SmartAsset Affiliate Program