To be successful, it is helpful for you to understand the reasons why others were not. The bad news is that the overall statistics of small business failures are very high. It is estimated that there is a 80% failure rate over a five-year period from business commencement. The good news, if you are operating from home, is that the failure rate is lower than a business outside the home. This is because the initial and ongoing risk is usually lower. In addition, there are home-related expenses you can deduct from your business income, thereby increasing the net profit.
The reasons for business failure are many. The entrepreuneur’s personal limitations are the primary reason. This includes, in order or priority, lack of personal qualifications to run a business, lack of experience in the line of business, lack of training, and unbalanced experience. These limitations lead to the following more specific reasons.
1. Money mismanagement
Money mismanagement is a common reason for business failure. Some of the typical problems home businesses encounter include: insufficient funds to meet startup and operating expense needs, cash flow problems, too much debt, not enough money to grow, charging insufficient to make a profit, inadequate financial planning, poor credit and collection practices, and inadequate bookkeeping. Many entrepreneurs “bleed” the business by taking more money from the business that it can afford. It is important to save some of the earnings a buffer for unexpected business expenses or to reinvest the business.
2. Poor marketing
Many entrepreneurs simply don’t know who their prospective customers are. They have not done their marketing research – have not identified their market, segmented it, or actively promoted it on an ongoing basis. You may have a great product or service, but if the message does not get out, the business will suffer accordingly. Preparing and following a realistic and attainable written marketing plan is necessary.
3. Mistaking a business for a hobby
Many people enjoy what they are doing, but never consider it more than a hobby. The object of operating a business, of course, is to earn a salary, recover all your expenses and make a profit.
4. Failure to evaluate themselves realistically
The failure to make a frank assessment of personal strengths and weaknesses, needs and desires is a common mistake. You may find that your business requires skills that you do not possess, such as a goal setting, decision-making, and selling. Objective feedback from your family, friends, relatives, and business associates is necessary.
5. Failure to set and revise goals
Goals or objectives are not determined, or they are ineffective because they are not measurable, specific, or realistic. Preparing a business plan is an essential part of goal setting. Failure to reassess goals can create serious problems. Various direct and indirect factors can affect your goals and require them to be modified in order to remain viable and effective. For example, unexpected problems could occur such as the illness of the owner, new competition, overly ambitious timetables, supplier delays, increase in lending rates, or loss of a major client. Revising goals will ensure your business continues to grow despite unexpected obstacles. Reviewing the targets you have met can provide an important sense of accomplishment, self-confidence, and motivation to continue.
6. Not being suited for a home-based business
A person could otherwise have good business potential but cannot adjust to the unique features of operating a business out of the home, such as self-discipline to establish a regular work routine, or ability to separate family life and work.
7. Lack of commitment
Personal motivation and desire to stick with the objective, regardless of the normal ups and downs, is essential. Some people give up their commitment too easily if the goal is not attained quickly and without difficulty.
Reflect on the reasons for failure just described above and set out to do the opposite. Do a detailed personal assessment, be honest with yourself, and ask others who know you well for their candid input on how suited you are for the business you are considering. Seek and obtain quality input from your professional advisors and from those people who matter most.
