4 Small Business Killers and How to Avoid Them

About 20 percent of all small businesses will fail in the first year of operations.

Of course, your industry may have higher survival rates than others. If you’re running a healthcare business, you’re facing an average failure rate of about 15%. On the other hand, a construction business would be facing a 40% failure rate.

Even though everyone’s business is unique, most businesses are forced to close their doors for 4 core reasons. These are the small business killers of today’s business landscape.

If you can anticipate these problems, you can plan how you will react to them. Or better yet, avoid them completely. You can see the storm on the horizon and go in a different direction.

To ensure you’re setting yourself up for success for your first year and beyond, today we will explore the top 4 small business killers and make sure they don’t force you to close your doors.

1. Cash Flow Problems

This is easily the biggest problem that small businesses face and the reason that a whopping 82% of them close.

Of course, this problem can take a number of different forms. You might be short on cash because your sales are too low, your expenses are too high, or you’re having trouble collecting overdue accounts.

One of the reasons this is such a massive problem is that there are so few places for new businesses to turn when they need a fast influx of cash to help them survive and grow.

The big banks are of little help to young and struggling businesses. Right now, the big banks are approving the most small business loans in their history, but they are still rejecting over 80% of their applicants.

That means 8 out of every 10 entrepreneurs who go to them for help are being turned away empty-handed. And that statistic does not include the small business owners who know for a fact the bank won’t help them, so they don’t even bother to apply.

The Small Business Association’s Loan program helps you find an SBA loan broker who will have more relaxed lending standards than the big banks. However, they are still rejecting about 75% of all applications. You still need to have been in business for a couple of years and have sales numbers and a business plan to convince them you’re not a risk.

It’s important to know that the application processes for both the major banks and the SBA are rather involved. They can stretch out over weeks before that 75-80 % of applicants get a “No.” All that time wasted with nothing to show for it.

This is compounded by the fact that, by the time most owners realize they have a cash flow issue it may be too late to get a loan! Options like he SBA and Term Loans may not be an option with regards to timing.

Avoiding The Cash Flow Killer

When things are looking bleak, you will feel the urgent need to get access to working capital at lightning speed so you can turn things around. You need funding to ensure you are paying your bills and making payroll.

But where can you turn if banks aren’t an option? The good news is there are funding options for business owners like you who just need a little help. For example, Payvant Capital offers business merchant funding to entrepreneurs who would be turned away from banks or SBA brokers.

The merchant cash advance (MCA) could offer you the much-needed cash influx you need, while giving you the flexible payment terms to give you a chance to get back on your feet and actually grow.

An MCA is a type of funding, not a type of loan. So, you’re not bound by traditional lending criteria, which means merchant cash advance lenders can be more focused on your future and less so on your past or present. They can see growth opportunities instead of credit risks.

How Does a Merchant Cash Advance Work?

Simply put, you would receive a cash advance from your provider and pay it back through a small percentage of your future revenue/ transactions.

This often makes repayment easier than a traditional loan. With a loan, you make the same loan payment every month. However, with an MCA, your business is remitting daily or weekly debits from your bank account through Automated Clearing House (ACH) withdrawals. The amount you pay is a percentage of your income. This means that when sales are low, your payments will be lower to reflect that.

Another key benefit of the MCA is the ease and length of the application process. You can apply completely online and often receive an answer the same day. You could also have the money in your account the very next business day.

2. Team Troubles

Like cash flow issues, this is a problem that can take many forms. So much can go wrong while you’re building your staff.

Maybe you simply have bad team chemistry or a toxic relationship between some key team members. Or, maybe you hired the wrong person for a crucial role and their underperformance is dragging the whole company down. Or, maybe you put a lot of your eggs in one employee’s basket, only to have them poached by another company.

The smaller your team is, the less margin of error you have for any problems. If you have a 6-10 person team, toxicity spreads faster. Your staff is also more likely interdependent and one underperformer can really get in the way of other people performing their jobs. Also, a key member leaving you suddenly can leave behind a blast crater-sized skill gap that you need to fill ASAP.

Avoiding the Team Killer

We know you’re probably trying to run as financially lean as possible in those first few years, but it truly does pay to bring in a professional to help you hire your staff.

You may see it as an expense that you can’t afford. However, what you really can’t afford is to pay someone who isn’t working out, and then have to re-staff the position again in a few months. That is far more expensive.

The unfortunate truth is that too many small business owners assume they can hire their own staff until they learn the hard way that they’re not great at it. They may think they have a great “feel for people” or “an eye for talent.”

For example, a former coder who launches their own tech start-up may think they know the skills and traits they need to look for in a junior coder. The business owner’s industry knowledge is great, but they lack the skills to spot red flags that this coder is most likely going to leave them in 6 months for another job. So, the business owner learns a very expensive lesson.

Also, if you are going to do your own hiring, ask yourself what skills are intangible and which ones can be trained after the fact. You might be dead-set on hiring a sales leader with extensive SaaS sales experience. That would be great, but tunnel vision there may cause you to miss out on other blue chip candidates from other sectors. Their core skills are intangible and transferrable.

3. Trying to Scale Too Quickly

The most successful entrepreneurs occupy a happy medium between patience and pursuit. They have the burning desire to grow their business as fast as they can, but they have the patience and foresight to know that this needs to be done at the right pace. Being too passive is just as dangerous as being too aggressive.

However, it does seem that more businesses will fail while trying to grow too quickly. In fact, a study by Startup Genome and Stanford University revealed that 70% of 3,200 start-ups attempted to scale their business prematurely.

The good news is that there are often early warning signs that you’re trying to scale too fast. This most often takes the form of your business spending a disproportionate amount of time in one area of your business, while under-serving or even ignoring other crucial ones.

Avoiding the Scaling Killer

Be extremely mindful of how fast one part of your company is growing in relation to other parts.

For example, you could be spending too much time selling and not enough time developing. This may lead to you selling a product that is not really ready to go to market yet. It could be missing the chance to improve based on feedback from a soft launch or test launch.

If your research has proven there is a demand, and your product is the right fit for this demand, your would-be customers will wait.

4. A Lack of Focus

This is not to say that you, as the business owner lack focus. You’re probably hyper-focused on your business.

The lack of focus we’re speaking of could be in who your business is targeting. Lots of businesses start off with grandiose plans for world and market domination. Everyone wants to be the Amazon of ____ or the Uber of _____. It’s good to set your goals high, but the more narrow your focus is to start, the easier it will be to zoom out and expand your company incrementally.

Simply put, don’t start out trying to be all things to all people. Start out by being beloved and indispensable to a small group of people, and grow based on the strength of that.

Don’t forget that in the early years, Amazon only sold books and Starbucks only sold coffee beans.

Avoiding the Focus Killer

Try to focus on a niche market to start out with. Yes, your product may be useful or appeal to everyone. But you can’t sell or market your product to everyone to start. Your marketing efforts need to target the pain points of a specific audience, so you can lock into the terms and language that will resonate the most.

Begin with a submarket of people who you feel could use your product the most. Whose pain point is the strongest and most urgent? Who needs your product or service right now?

For example, let’s say you’re developing an app to become the Uber of maid services. You match quick and affordable maids with people who can order them with a single tap on your phone. That’s an amazing business and who doesn’t need that, right?

Your best bet would be to begin marketing this to the people who need it the most. One sub-market you could go after would be young professionals who are always out and don’t have time to clean their homes. Their response to one of your ads may be “Oh I need that right now,” because of the pain point they’re experiencing.

You use success in that market to establish your customer base. Now, you’re proven and stable with a slew of 5-star reviews from your loyal fans. You leverage this success to scale your business and go after new markets.

Finals Thoughts

Of course, not all potential business killers will apply to your business. However, the four we have covered today are some of the most universal. Cash flow problems, issues with your team, trying to scale too quickly and a lack of focus each have the potential to bring any type of business down.

We hope this article can help you spot the early warning signs, or help you build a plan to deal with them if they come up. Getting ahead of them is crucial, as the businesses that are blind-sided by these issues are the ones most likely to have to close their doors because of them.

If you anticipate funding being a future issue, know that we’re here to help. Our application process is simple, fast, and non-intrusive. You can get approved in 24 hours or less.

You can start right now by calling 1-888-550-3162, or by entering the amount of funding you need into the pop-up screen on any of our webpages.