Episode 22 – Do Car Wraps Really Work?
Episode 20 - The 3 Ways to Increase Your Local Small Business's Sales

Stop Your Local Small Business from Failing! 

In today’s episode: We discuss the top 25 reasons that local small business often fail. By knowing what causes small business failure, you can react quickly to get back on track


25 Reasons Local Local Small Business FailDon't Have Time to Listen? Here are the Show Notes: 

Episode 21:  25 Reasons Local Small Businesses Fail

Welcome back to the Local Small Business Coach Podcast. I am your coach, Tammy Adams.

Today we are going to take a look at 25 reasons that local small businesses fail.

First, I’d like to share a couple of statistics. Did you know that it is widely held and understood that 50% of small businesses will fail within 5 years; and that 90% of small businesses will no longer exist in 10 years? That means, that if true, 9 out of 10 of you will no longer be in business in the next 10 years. That is crazy!

Did you start your local small business thinking you would just be a statistic? Heck no!  You went into it with high hopes and swearing that you would defy the odds.  My goal is to help you do that!  And the best way to avoid failing is to know what the most common pitfalls local small business owners make.

Now, before we dive in, we must acknowledge that many of you are probably already falling a victim to any number of these items, right now. Your mission today is to recognize it and put a plan in place to right the ship.

Now, to come up with these 25 items, I actually went out and started finding all the different reasons why local small businesses fail.  And, they actually fall into about 25 different areas. So, I've kind of weeded it down; and we've got 25 of them that you want to make sure you're not falling a victim to.

Now, since we have a lot to cover, we're going to dive right in but before we do, please know there is no rhyme or reason to the order.


  1. Trying to Do It All

If your goal is to remain small and only do a few small jobs here and there, then this might not be an issue for you. However, for most of us, we want our business to grow large enough to not only pay our bills, but we also want it to produce enough profit to fund our future and our current family's fund. In order to do that, odds are you will need help at some point to keep up with the additional business. Maybe it is to do the actual work, to help the customers, maybe it is to run your office, your bookkeeping or someone just to help your marketing.

When you're doing it all, then you are 100% guaranteed that you are going to start dropping some balls. It's impossible to grow; and continue to do everything.  Something will have to give.  You might be able to hang on for 7 or 8 years, but you become a high risk around that 10 year mark. You can only hold on for so long before it becomes too much.


  1. Not Adjusting to the Changes in the Market

Over the course of any 10 years, the odds are strong that there will be lots of changes in the market place. Technology will change, attitudes will change, what people find to be important will change. Their wants and desires will change. I’m reminded of this every time I show homes. What was popular in the 70's is different than what was popular in the 90's. Heck, in my small town, most of our homes are only 10 years old; and folks already feel they hate what was popular back in 2006.

Think about when the market shifted from a cash basis to a credit one and then on to debit. A business that didn’t take credit cards due to the hassle or the cost, slowly saw business slide to those that would accept those credit cards. And now, people are going back to cash.  You've got to be able to float.

Maybe your business has a new technology in it that you have been fighting. I’m not saying there is an issue with going old school, but when the market is screaming for something else, you have to make sure that you aren’t making an emotional decision, but rather a calculated one.


  1. Insufficient Capital or Financial Resources

Many small business owners are surviving job to job. Very similar to their counterparts with jobs living paycheck to paycheck. When you are taking every dime out of your company and not creating some cash reserves for emergencies or growth, you risk losing everything in a blink of an eye. You also stunt your businesses growth as you do not have the capital to grow. You can’t invest in marketing, in people or in equipment.

Another risk you have is that if the weather doesn’t cooperate; and your business might be something like say landscaping or something that is very seasonal and you have not saved up for those lean months, then you will not have the financial resources to survive.


  1. Not Paying Your Taxes

When you transition from employee to business owner, one of the most shocking things is to discover that you are now required to put money away to pay your taxes. Plus, you get the privilege of paying your full 15% into social security.

The problem is, when you have $1000 in your hand, the last thing you want to do is put half of it away for your taxes. So, unfortunately, many don’t. And when tax time rolls around, the pockets are empty but the bill is still due. So you either scramble to come up with the money; and you rob Peter to pay Paul or you go into debt with the IRS which I do not recommend. If you continue to do business in the same way, soon that number continues to grow; and you collapse under the weight of it all. I have heard horror stories of small business owners that owe $50,000, $100,000, even higher in back taxes. Ultimately, it crushed the business.


  1. Not Listening to Your Customers

Your customers are telling you what they want and what they expect if you will just listen to them. You cannot have arrogance to know what they need. You need to not just hear them but you really need to listen to them.  There is a difference.

They could be telling you that your products or services have problems or that they need something different that you currently aren't providing. They could be telling you that your quality is low; and that there is a problem with maybe your people. They could be telling you all kinds of stuff, things that you need to know. You just have to ask. If you don’t ask; and you don’t listen, they will eventually move on and go somewhere else.


  1. Location, Location, Location

Just as in real estate, your business must be in the right location. Not only must your brick and mortar be in one but even your mobile business. If your business is in strip mall that is empty, then why on Earth are people going show up? Just because you got a great deal, didn't make it the right decision for your business.

Another way that folks can chose the wrong location, is the type of business that they set up. For example if you are trying to run a garage door repair business in a town full of carports, then you are going to have a long road ahead of you, since there are no garage doors. You must provide the right business in the right location. Remember, if your business can’t be found or you are trying run a city business in the country or a country business in the city, then your long term prospects aren't looking too good, which kind of leads to number 7.


  1. Wrong Business at the Wrong Time

If you start a business that is tied to a trend, then it is important that you get into it on the way up and not on the way down. This really played out when the market tanked. There were tons of businesses that were built around all the luxuries and fads that people were willing to pay for before the crash. Once the crashed happened and money tightened up, those specialized types of businesses dried up quickly. People didn’t have the money to do those high end projects. For example, high end bathrooms that people were putting in and going crazy with, no longer were people putting them in. And, if you were a bathroom renovator, you took a serious hit.  Another example, were the independent pool companies.  People were putting in pools.  They had no problem putting In pools, but when the money dried up, folks halted this particular luxury. A lot of pool companies went out of business. So make sure your business is ready to pivot if something happens. It needs to be the right business at the right time.


  1. Growing too Fast

In episode 15 we discussed being a victim of your own success. There are businesses that disappear all of the time due to being too successful.  It sounds weird, I know.  Now, I won’t go into this one too much since we did discuss this in more detail back in episode 15, but if you didn’t listen to it,  just know that many small businesses do such a great job that they get more and more business but they don’t put the right people and processes in place to handle this increase in business. Eventually the business starts to collapse when the cracks show in service and quality.


  1. Poor Management of the Business

If you just do and do and do; and you don’t set aside the time to work on your business like we keep preaching, eventually the business is going to start to run you vs you running the business. Your sales might grow but without the right processes in place, your profits are going to be lost. If you aren’t paying attention to the details, you will wake up one day and find out that your business is headed for disaster.  Which leads to our next one.


  1. Poor Record Keeping and Financial Controls

When you have poor processes in place, the odds are very strong that you also have poor record keeping; and have no real idea what your money is doing and where it is going.

Think of your checking account. If you didn’t have any idea how much was in there and what you were spending, you increase the odds of your spending more than you have. Would you think twice about spending $50 on a dinner if you knew you only had $75 for the next two weeks? Believe it or not, this is happening in businesses all over the country.  Not necessarily the dinner, but they're spending money they don't need to spend.If I asked you right now, how much money was in your businesses account right now could you tell me? If I asked how much money was outstanding in your invoices, would you know? Believe it or not, so many of you will not have the first clue on either of those numbers.


  1. Getting Your Vendors and Customers to Pay

Poor recording keeping will lead to not getting paid. If you never send them a bill, they will never pay. I know some of you are blown away by this. You are thinking who in their right mind would never send out their invoices? It is more than you think.

If you sell your goods to other businesses, are you giving them 30, 60, 90 days to pay? This is a dangerous practice. While it is common in larger companies, it's really dangerous for the small business owner. You are taking a lot of risk. We already talked about the fact that you probably don't have the cash reserves. You can't afford for your business to go on that long, without getting paid.  Many small businesses have filed bankruptcy with tons of money sitting on the books unpaid.

Being nice will only bite you in the butt.  Trust me, you earned it, so make sure you get paid!


  1. Having a Bad Team in Place or Getting the Right People on the Bus

If you have a team, do you have the right people on that bus? Do they have great attitudes? Do they care? Are they stealing? Are they trained? Do they care about your customers in the same way that you do?

Businesses fail when their teams are horrible. Customers stop coming, word of mouth gets out. Soon the business dries up and all of it could have been prevented had the team been made a priority. Remember, you must have the right people on your team. They are an extension of you and your business. If you have the wrong people in place, your business is ultimately going to fail.


  1. Taking Your Eye off Your Customer

Businesses go out of business all the time, when they forget to make their customer their #1 priority. No matter what your businesses is, you are in the people business. You are providing a service or a product to help them with a pain point they have or a desire they have.

When you shift your business off the customer and focus on other things, you slowly drift off track and lose sight of what they are needing or wanting. If you aren’t adjusting to their needs, you will not be in business for long. You must remember, you are in the people business no matter what your business is. And I know that is difficult for some of you because you are in love with the thing you do but ultimately without that customer, you don't have a business.


  1. Too Much Debt and Poor Cash Flow

This one is a biggie. When you have a business with debt, you start the month off in the hole before you even get going.  So many small businesses have to create $500 to $3,000 in profit just to pay this debt each month. And if for every $100 in sales you do, let's say you have $50 in costs, that leaves you needing to sell $1000 to $5000 just to cover this profit. This doesn't even include what you need to pay your own bills.

What kills most folks is, they take those profits and pay themselves first and hope and pray they can make more money to pay this debt. Soon, they collapse under the weight of the debt and the business folds. This is one reason I am a huge fan of running a debt free local small business.


  1. Treating Your Business More Like a Hobby

Sure many small businesses are started part time. This allows folks to ramp up and build their business. Unfortunately, there are some that never get out of the “hobby” stage of their business. They dabble in it. They do jobs here and there but it never takes off. Unfortunately, these folks are one of the quickest small businesses to fold.


  1. Poor Decision Making

When the time comes to make decisions in the business, normally you want to make an informed decision. You want to gather the facts, determine the pros and cons, and pick wisely which direction to go. Unfortunately, there are business owners that shoot from the hip and make emotional decisions or poorly informed ones. This can lead to not only loss of sales but can be catastrophic at times.  Usually this is caused by our next item


  1. Not Aggressively Learning

Don’t confuse on the job knowledge as being the only thing you need to succeed. While I’ll take hands on experience over book knowledge any day, that doesn’t mean you can’t continue to learn. We’ve discussed in the past, how you need to constantly learning from others as well. In episode 14, we discussed learning from other people’s mistakes and successes.  Another thing I see all the time is when someone has been doing a business for quite a bit, they think that they know it all; and there is nothing they can learn from others. They roll their eyes when feedback is shared; and they have no desire to learn how to be a better business person.  You might recall this in another previous episode, where we talk about your ego get in the way.  The good news is, I don’t believe this is you. You are listening to this podcast; and odds are you are listening to others. Remember, always be looking to learn more.


  1. Misguided Optimism or the Superhero Syndrome

This one might sound like an odd reason for a business to fail, but it happens more than you realize. I probably suffered from this a little myself back in the day, but that is a story for another week. Actually, I think we'll talk about it next week.

When we think that things just have to get better or that we can “save” a business even though all the data says otherwise, we are bound to lose our business through this Superhero Syndrome, thinking we can save a business that is already doomed.  It is important that you realize, hanging on to something that isn't going to turn around no matter how good you run it, is not a good reason to keep holding.  Like I said, we'll talk about this a little bit more next week.


  1. Poor Customer Service

Similar to taking your eye off of the customer, this one is actually worse. It is way easier to course correct on the other and not this one. A pattern of poor customer service is a habit that is very difficult to break and even harder to convince your community to give you another shot. If they have already pledged their allegiance to a new business who does value them, your odds go down dramatically that they will not be back; and we all know that losing your customers will kill your business.

Don’t treat them poorly. Make sure your employees understand their importance and treat them with the respect and great service they deserve. Yes, customer service is on here three times, that should tell you how important customer service is.


Alright, heading into the last five!


  1. Thinking Short Term and Not Long Term

You must be looking out further than just a month at a time. Or even 6 months at a time. Your business needs to have long term goals and your action plan must include steps on getting towards these goals. You can’t just be reacting day to day or moment to moment. You need to know where you are going and how you plan to get there. When you know where your company is going in 5 years, you can put into place the tools and resources you need to get there.  Small businesses will fail if they are just repeating the same year over and over and over. They aren’t working towards anything so they actually begin to die when they have no plan to grow.


  1. Poor Inventory Management

Inventory is money and inventory is potential sales. You must have the right inventory to do the job. You must have the right mix with the right amount to it. Without it, you risk losing sales. However, this can be tricky since inventory is also potential profit just sitting on your shelf. For every dollar that is sitting there, that is one less dollar your company is making. You must find the right balance. You need enough inventory to do the job but you also can't afford to have it sitting on your shelf. We already know that poor money management is a key factor in local small businesses going out of business. So, therefore having too much inventory just continues to add to that formula.

So have what you need to maximize your sales but turn that inventory. And when I say turn, it means just order it when you need it. That's the most important thing. You need to free up your cash. 


  1. People Not Even Knowing You Exist

In today’s online world it is imperative that people can find you. I don’t care what type of business you have you need a website. Even if it just has what your hours and what your business is about. You also need to claim your business on Google and Bing. People need to find you.

This goes for brick and mortar businesses as well. When I had my store I was always amazed at how many folks didn’t even know I was there. I was in the most popular strip center; and I was on the corner by the main intersection in town. I was always amazed when people would roam in and go, “I didn't know you were there”. And then I found out they lived there for a year or two!  I knew if I wanted more sales, I needed to find ways to get my business out to folks in my town. I was constantly trying to be creative. Don’t let your business die from a lack of awareness.


  1. Burnout

This one happens more than you think. If you are a type A personality, then you hit that ground running every single day. You work between 12 and 15 hours, trying to make ends meet; and give your family a great life. The challenge is, after 5 years of doing this, burnout starts to set in. You are tired; and I bet there are a few of you that are already feeling this. I know some days I do.

When you suffer from burnout, eventually something has to give. It is either going to be you or your business.  When it gets too bad, you will either quit the business and go back to a 9 to 5 job or you will just let your business slide on service and quality. You'll stop caring; and eventually the business dies.


Alright, we are heading into the home stretch….


  1. Lack of Leadership

If you have a team; and they have no leadership, then they have no direction. Without direction, they will do whatever they feel like. They have no mission, no game plan, no direction. Your customers never know what they are going to get. Service, quality, in-stock condition, etc. will all be a crap shoot from day to day. When people have no leadership, they tend to do whatever they want. Therefore, your business may or may not have any success. Odds, are it's not going to be.

But leadership is more than that, leadership is also about providing a vision for the business. Even a single person business needs good leadership. Someone must have this vision of where the business is going to go. Businesses fail when there is no one to lead it into the future and provide the direction the business and what the team needs.




  1. Underestimating Your Competition

Finally, let’s talk about your competition. Businesses fail when they assume that they are all of that and a bag of chips. This is when the cockiness creeps in and the competition is dismissed as a non-threat. The problem is, your competition can creep up on you and take over when you stop paying attention. Maybe they get new leadership or maybe they are quicker at tweaking their business to the customer need. Never underestimate how small changes can lead to great changes.

Your competition might also start taking advantage of your weaknesses. Maybe they notice you aren’t taking care of your customers the way you should. So they put an emphasis on this and sneak up on you. Next thing you know, your business is sliding backwards while theirs is pulling ahead.  Never take your eye off the competitors. We've talked about this in the past.



Alright, that covers 25 of the most common reasons that local small businesses go out of business.

Actually, what's kind of neat about this, is all of these reasons fit any business whether you're small or large. You could say it crosses all business sizes. Even the largest of businesses can suffer from any of these. The sad part is, they are probably fighting 2 to 3 of these at any given time; and their individual store locations or they're individual plants, whatever they have, they also can be having their own issues. Be thankful, you just have yours.Point is, none of us is immune. The key is to identify it; and put a plan in motion to address it.

So how did your business do? Did any of these ring true for you? I challenge you to identify the top 1 or 2 that you are most susceptible to and get to making changes. I’m going to assume that for 99% of you, you want your business to succeed. You don’t want to be a statistic. And, if you don’t want to be a statistic, then you always need to be looking for your derailment factor.

Now for that 1% of you that might be in the final leg of your business; and you see that sometime in the next year or two you just might not be in business for a reason, then have a plan; and wind it down your way. End it on your terms; and don't let it be a surprised ending.


Next week we are going to dedicate an episode to recovering from business failure. I’ll be sharing my story; and how I learned that even the best ran businesses can still fail. That sometimes, holding on might not be the best option.  It was a tough lesson to learn but one that we all can learn from.


Alright, this has been a long episode; and I appreciate you hanging in there with me. And don’t forget that I’ll be starting up some free coaching calls.  What I’m going to be doing is, for all of the folks that leave either a review for the show or leave a question for the show, I’ll toss your name into a hat and pick a random person to get the free coaching call. So once you leave either a call or rating, shoot me an email at tammy@localsmallbusinesscoach.com

By the way, I do try and respond to each question that is asked so even if you aren’t picked, I will try and at least get back with you; and my two cents on your question. So, I will see you on the next episode; and I wish you the best in your business. And remember, great customer service coupled with great business practices will set you on the path to great profits.

Bye for now…..


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Today's episode, as well as all of our episodes, is brought to you by trainingforlocalsmallbusinessowners.com. Where we provide free tips, tools and resources for your local small business. So whether you are just starting out or you've been in business for a while and want to learn more ways to increase your profit, boost your sales, improve your processes and develop stronger teams then head on over once again to trainingforlocalsmallbusinessowners.com..


And if you are Thinking of Starting a Local Small business, over at StartALocalSmallBusiness.com we have lots of free tools and resources to help you get your local small business started. Plus, we now have a more in-depth course to Help Get you going.  It has 12 modules, 50 mini videos and 13 downloadable tools a person can use to start their local small business. You can find the link once again at StartALocalSmallBusiness.com. I also have set up a special discount code for listeners of the podcast.  At checkout, just add the code PODCAST to save 25%.

See you on the next episode!


Two Great Books to Help You With Your Small Business:

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