For over a decade, Wide Merchant Group has helped hundreds of small business owners across the United States and Puerto Rico to flourish and expand. In our many years of helping small business owners achieve their goals, we have seen common characteristics of businesses that do well and those that have failed. In a Forbes article published by author Chad Odar, the author also talks about these characteristics. While unfortunate, learning from businesses that aren’t successful can also be valuable in helping newer small business owner succeed and increase the value of the business and the community.
What Percentage of Small Businesses Fail?
"According to the Small Business Administration (SBA) Office of Advocacy’s 2018 Frequently Asked Questions, roughly 80% of small businesses survive the first year. That number might be surprisingly high to you, especially considering the commonly-held belief that most businesses fail within the first year. However, from there the number falls sharply. Only about half of small businesses survive past the five-year mark, ranging from 45.4% to 51% depending on the year the business was started.”
This might seem alarming but it is important that small business owners be aware of this fact. It is again a cautionary tale that small business owners must pay attention to. There are many factors for this drop and this article below will discuss a few of them.
The author mentions multiple reasons which Wide Merchant Group does agree with but would like to point out these problems that can be easily solved. We would like to highlight these three reasons.
1. First, lack of access to capital for many businesses can be a huge problem. Many small businesses often do not have surplus capital and this can hamper the growth of a business very effectively. Capital is needed in order to fix or purchase equipment, purchase new products and even fix any problems in the store.
Not Enough Capital -
"The second most commonly cited reason for failure was not having enough capital. This isn't so surprising, given that more than one-quarter of small business owners say they aren’t able to obtain the funds they need to operate their business, according to a National Small Business Association study.”
When small business owners realize that they do not have enough capital, they immediately panic and look toward bank loans. But often, those loans require too much paperwork and tremendous time commitment that many owners simply do not have. Getting a funding from a Merchant Cash Advance is a great solution as that only requires three most recent bank statement and often fund in as little as 48 hours. This offers a tremendous advantage over slower moving bank loans and allows you to fulfill your need for additional capital immediately.
2. Another point that the author makes is that lack of market need can quickly cause a downfall. A business has to offer something a customer needs or desires that others already do not offer. This again means that the merchant has to always be on top of the latest trends and ideas. A product might be a huge hit one year and will not sell at all the next year. A business can have the greatest product in the world but if the market they are selling it too doesn’t need it, the business is going to struggle.
No Market Need -
"The most commonly cited reason for small business failure was more nebulous than others on this list but also much more fundamental to what makes a business idea great in the first place: whether it solves a need.”
Thus, it is crucial that a business is willing to change and listen to the most important part, their customers. If customers do not desire the old outdated product and want the newer product, the business that offers the newer products holds a tremendous advantage. This is a problem that we have seen with many merchants but it is also a problem that many of WIde Merchant funded owners are able to solve. They use the funding to evaluate their needs and purchase materials and equipment that customers want to buy and use.
3. Pricing Strategy is another very important point. As the author states, businesses have a hard time pricing their product.
“Price your product too high and you’ll push away potential customers, too low and you won’t be able to turn a profit. Figuring this out is easier said than done if you don’t have anything to go off of. However, it’s no less essential to ensuring your business’ success.”
Pricing not only depends on your variable and fixed costs, it also depends on your competitors. If your competitor offers a lower price for essentially the same product, customers will often go to the merchant that offers the lower price. It is crucial to evaluate your needs, what the market looks like and also if your customer can afford it. The pricing of the product has to be appropriate for the market the small business owner is targetting. This also means that you will have negotiate with your suppliers to reduce your costs so you can end up with higher profit. Switching suppliers might be costly in the beginning but if they realize that you are a loyal customer, they will offer higher discounts and other benefits. This also goes back to the first point which was capital. Switching suppliers takes time and the merchant would need capital to do so.
To read more about the article this was based on, please visit "What Percentage Of Small Businesses Fail -- And How Can You Avoid Being One Of Them?", originally featured in Forbes.
If you have any questions about how Wide Merchant Group can solve your small business needs and get you the immediate business funding to propel your business forward, visit us online to get more information or chat in real-time with a real financial specialist.