What are the top 9 reasons why small businesses fail?

Ralph
00:00:00

Are you a small business owner who feels like you're constantly drowning in a sea of challenges? Do you lie awake at night, wondering if your entrepreneurial dreams are slipping through your fingers? Well, let me tell you right now, you're not alone in this struggle.

And today, I'm covering the top 9 reasons why small businesses fail, but more importantly than that, I'm going to explore how faith can be your lifeline to success. So stay tuned to discover how you can transform your business from barely surviving to what I'm going to say, divinely thriving. This is a show you don't want to miss.

Narrator
00:00:37

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business. financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Junior.

Ralph
00:01:05

I just want to start by thanking you for joining me today. I am thrilled to have you with me as we explore the world of finance through our Christian lens. And if you want to think about it yesterday, we talked about it on the show, I answered a very simple question. And is it true that I can lose my passport if I don't pay my taxes? If you missed it, I'm going to suggest you go back and listen to it because there are significant implications for both your financial and your personal freedom, and you don't want to get caught off guard with that. So if you missed it, go check it out.

Well, I got a listener question today from Linda. Now Linda's a small business owner in Atlanta and this is what Linda wrote. She said, "Dear Ralph, I'm at my wit's end. I've poured my heart and soul into my boutique for the past two years, but it feels like I'm constantly fighting an uphill battle. Every month, I struggle to make ends meet, and I'm terrified of becoming another failed business statistic. How can I ensure my business survives and thrives? I need your guidance desperately."

Well Linda, thank you for your question. I can feel the pain in your voice and listen. This is a common struggle. I faced it. You're facing it, many of us small business owners face it, but here's the best thing about today. I'm going to give you the knowledge and strategies to help you overcome those obstacles. And listen, if you've got a question like Linda, the best way to reach me is go to justaskralph.com and you can leave your question there. But here's something even better.

You can join me every Tuesday evening at 7:00 PM Eastern time, when I go live. That's right. I go live with the Ask Ralph show live. And if you want to join us, you can join us. Like I said, every Tuesday at 7:00 PM, Eastern time, you go to askralphpodcast.com/live. And I hope you join us. Bring your questions. That's the time for you to ask questions. And we can share some time together in the community.

Well, you know I always like to start things off with looking at the Word and I thought about what would be a good scripture to use for small business owners and working to overcome those challenges from a Christian perspective. And I've found this in the book of Philippians, one of the most beautiful verses of the Bible.

And like I said, this is from Philippians 4:13, it says this. "I can do all things through Christ who strengthens me." Think about how beautiful that verse is and what the word is telling us that I can do all things. Not some things, not most things. I can do all things through Christ who strengthens me. And it really illustrates the importance of wisdom. It illustrates the importance of understanding.

And like I say on the show all the time, it illustrates the importance of knowledge. It's just like building a house. It's the same for a business. You got to start with a strong foundation. That's exactly what we're going to talk about on today's show.

And listen, I've seen countless small businesses come and go. I've been doing this since 1994. And actually, I have really been doing this since I was eight, grew up in the accounting practice. My dad's an accountant as well, and I heard horror stories from the time I was eight years old. I was working at Copier during tax season. And it breaks my heart to see dreams shattered. I've seen personal, financial lives completely destroyed because people poured all they had into their businesses. So today I'm going to share some hard-earned wisdom with the goal of having this wisdom save your business if, and not be one of those statistics. And here's some scary statistics.

I read these, prepared for this show today. I found these statistics and if you think about this, the failure rates for small businesses, about 20% of small businesses fail within the first year. 20% in the first year, but here's the more sobering statistic. 50% fail in the first five years. And if you weren't feeling bad enough, let's go to the 10-year mark. Because at 10 years, 70% of small businesses fail. So you might be asking, all right, Ralph, what are the 9 reasons small businesses fail? And I'm going to jump right to it. And this is a comprehensive list of the things I've seen in my over 30 years of doing this, of what causes small businesses to fail.

The first one is lack of market research and planning. Let me tell you about a client I had a few years back and this client was passionate about gourmet coffee, and I'm not a coffee drinker, but this dude loved gourmet coffee. And he said, he said, Ralph, I can open up this gourmet coffee shop and it will be fantastic. And truth is he invested his entire life savings in this coffee shop, and it was a high-end shop. But he opened it in a real small town. Real small town here in Delaware. And he was convinced.

He said, Ralph, everyone is going to love this coffee. It's the best coffee on the market. And he was convinced that everyone would share his passion. I said he poured everything he had into it. He invested his life savings. It was everything, it was all consuming to him. Well guess what? In six months, the store was closed.

You might be asking why? Well, here's the problem. He failed to understand his target market. Sure, busy pros are willing to pay premiums for his coffee. But not in this small town. He didn't think it through. He didn't look at his target market and say, is this small town going to pay the price for premium coffee. So you might be asking Ralph, how do I avoid this?

The biggest thing you can do is you've got to do market research. Just because you've got a great idea doesn't mean it's going to work where you think it's going to work. You got to understand your target audience. You got to understand their needs. You got to understand their buying habits. Maybe in a big town where there's a lot of professionals, this business would have took off and people said, oh, this is the best coffee ever. But you got to understand their needs, their desires and, and understand their buying habits and the way you do that, you create a detailed business plan. And that business plan needs to include your goals.

It needs to include your strategies. And more importantly, your financial projections. So, like I said, this is number one, and that is lack of market research and planning. Don't make that mistake. Let's look at number two. And unfortunately, I see this every day. And that's poor financial management. I had a client that started an online boutique. She was very successful at first.

She knew her stuff. She knew what she was doing. And sales were booming. I remember her telling me one time that delivery trucks, Ralph have to come three times a day because I've got so many orders going out. And you might be thinking, Ralph, that's great. Sounds like she really, she really nailed it. She has been successful. But a problem started right after she started. She wasn't tracking her expenses properly. Tax season rolled around.

She came in to get her taxes done. And she owed a ton in taxes because she had been really successful. She was making a ton of money. She was selling like crazy but was not keeping track of anything. And when she got that tax bill, the truth is it nearly bankrupted her business. It took all of her working capital. She almost lost it all.

We were able to solve it and save it for and come up with a plan. But the solution you might be asking Ralph what's the solution? Well, you got to create a financial management system. If you can't do it, hire someone. Hire me. I'll share later in the show how you do that. But at the very least, you got to keep your records of income and expenses and do that every day.

Don't put them in a shoe box and wait till the end of the year. It's going to be a disaster. Because if you listen to the show, you know, one of the things I always say, and that's what gets measured, gets done. And during that process, you've got to think about setting aside money for taxes. In a live show the other night, someone asked me a question about estimated taxes. You might not have to pay estimated taxes for a penalty, but you better doggone be ready to pay them at the end of the year. And that's one of the things I work with my clients. We look for ways to keep more of your hard-earned money during the year, but in order to do that, we got to know where your business is going, because I say this on the show all the time.

It's all about tax planning. Preparation is great. I can do a fantastic job of doing that, but it's really too late then to make impactful changes. You got to partner with a pro. So, like I said, that's number two. That's poor financial management. Let's look at number three. And that's ineffective marketing. I had this client; it was a top-notch landscaping service.

I mean, this dude made things look beautiful. When you looked at the work he was doing, it was great. He spent time. He took the time to do the things that a lot of people would miss. He did great with those edges. The shrubbery always looked great. So you might be asking Ralph, what was his problem? Well, his problem was he struggled to attract customers. He relied only on word of mouth. He was sort of a dinosaur, young guy, but a dinosaur.

He completely ignored our digital age. And the problem with that was his competition had a huge, strong online presence. They use social media. They use TikTok videos. They use YouTube, Facebook, Instagram, they took pictures of jobs. They send it out. They asked their customers to do the same. So you might be asking Ralph, how do you fix that problem? I'm going to tell you again; it's about creating a comprehensive marketing plan. And you've got to build both traditional and digital methods in that. You cannot bury your head in the sand and pretend like business today is the same as it was yesterday.

It's just not. You've got to embrace the digital methods of delivering content to your customers. This is why I do what I do. This is what the podcast is all about. We do a video. We do an audio; we do YouTube shorts. We do Facebook reels. Well, you've got to do the same thing in your business. If you want to be successful, yes.

Word of mouth works. It absolutely works. But the thing you've got to come to realize in this digital age, it's not the entire answer. So again, problem number three, ineffective marketing. Let's look at number four and that's failure to adapt. I can't tell you how many times I've seen this but let me tell you about this client. This guy was a bookworm to the extreme.

He was a local bookstore owner. And this dude, he failed or refused to embrace e-commerce. He said to me one day, I asked him about it. He said, Ralph, he said, people will always prefer physical books. My wife loves physical books. She loves the smell of those books. A lot of people do that. I thought that was a weird thing, but it is a very common thing. But here's the problem.

Again, we're living in a digital age. And all around him, people were doing online sales. The online sales were growing, and his bookstore became a ghost town. There was nobody going in there because they could go online and yes, they could still find those physical books online, but they didn't have to go spend hours running through the shelves of his bookstore, looking for stuff. And what happened? Unfortunately, he was forced to close.

He couldn't make ends meet. He had poured his whole life into this. And the crazy part of the how ironic part of this whole thing was his books ended up being sold online at liquidation. So as much as he resisted this, he refused to embrace this e-commerce, in the end, his books ended up being sold online. So what's the key to this, Ralph? It's to stay flexible and be open to change. You can't live with your head in the sand like a dinosaur and feel like things and pretend like things aren't changing. You've got to pay attention to trends. You got to be willing to pivot. If you don't, you will be forced to close as well and everything you've poured your life into, like I felt so bad for this guy. He had poured everything into it, but his belief in being so rigid about not embracing technology led him to completely lose everything he'd work for. So that was number four, failure to adapt. Let's move on to number five. I wish this one wasn't as common as it is, but it's huge.

And it's poor leadership and management. I had a client that made the best cupcakes in town. I mean, I'm telling you, like I'm a type two diabetic. I shouldn't eat in these cupcakes, but they were fantastic. And we were doing payroll for her, and I couldn't understand it. Like her employees would quit constantly.

We were constantly onboarding new employees. And one day I was at the shop, and I asked one of the employees, I probably shouldn't have done this, but I said, hey, what is going on here? How come there's such a huge turnover? They shared with me the dirty little secret. The boss was a micromanager, and she was terrible at communication. The employee actually said to me, she's a tyrant to work for Ralph. That was not what I wanted to hear, but it, it made sense finally. I understood now why we saw this huge turnover in employees.

And you might be thinking, okay, big deal she had a high turnover. Yeah. But here's the problem. That high turnover resulted in lost quality and poor customer service, because it was always new faces. There was always new people making the cupcakes cause she couldn't do it all alone. But ended up, she ended up being all alone with no employees. Because nobody would work for her. There was nobody good enough.

She was such a tyrant, and she was such a micromanager that nobody would work for. And you know what's coming next, her business failed. So you might ask Ralph, how do you fix it? Well, here's the deal. You got to develop your leadership skills. You got to start seeing your employees as assets and honoring them.

You got to work to build them up. Tearing them down is not going to be a long-term success strategy. Another thing she had to learn was that she had to learn to delegate. She had to learn to effectively communicate. You got to make your place a business somewhere they enjoy working. Because here's the little secret. That positive feeling, if your employees feel positive about where they're working, that's going to be reflected onto your customers.

And if they don't, it's going to be the same thing. Your customers are going to go away. Your employees are going to go away and you're going to fail. Unfortunately, I hate to say it. So that's number five. Poor leadership and management. If you're in that place, do something about it. Now there are resources out there.

You can book a call with me and I can tell you how to make things better. Well, let's look at number six. And that's ignoring customer needs. I had another client that ran a software company. And this was a brilliant guy. I mean, he was as smart as attack. He had developed what he thought was the most revolutionary product on the market.

I don't remember what it was. It was something very, very niche. But here's the problem. As soon as he developed, he started marketing it, customer complaints started coming in. But rather than embracing those, he was offended by their feedback. I remember him telling me one time, he says, how dare they question my product? I said, that's not a good way to do your business, my friend. And it's funny because the customer's requesting features that would have made his product better. But he was insulted by their suggestions. How dare you question me. Well guess what? They questioned him and they left and went to his competition who was making a similar product. So you might ask Ralph, what's the key takeaway here? And this is something I've had to learn in my own practice.

You've got to prioritize customer feedback, ask for reviews. In fact, encourage reviews. And I'm going to mention a great book and I'll put a link to it in the show notes. It's called “A Complaint is a Gift.” This is a must read because here's the deal. If a customer is willing to complain, then guess what?

You still have time to save them. If they're not complaining, they're just leaving. They're going with your competition. And the biggest thing is you got to be willing to adjust to that. You got to be willing to accept you're not always right and give them what they need. You can't have that mentality of you know better than your customer. You may very well know better than your customer, but if your customer thinks that there needs to be tweaks to the product, and you're not making those tweaks, you're going to find yourself losing the battle. And losing the war. So that's number six. Ignoring customer needs. Let's look at number seven. And that one is rapid expansion without proper infrastructure. I have seen this a million times.

Let me tell you about Emma's homemade jam. This was a great business. And Emma had this jam and guess what happened? Some celebrity found it and she mentioned it on social media. This is the digital age we live in. You get a, somebody to mention something on social media and it grows like a virus. And all of a sudden, Emma's sales were surging.

She had to rapidly expand because she saw this opportunity. She wanted to take advantage of the market. And what did Emma do? She opened up multiple storefronts and she did it quickly. She hired dozens of employees. But here's the problem. Emma might be good at making jam, but she did not have systems for growth. Opening up rapid storefronts, hiring dozens of employees, and what happened? It led to poor quality control and bad customer service. She also hadn't considered the financial strain of that overhead. Now she had rent to pay for all these shops. She had all this payroll and benefits and all that stuff. So you might ask Ralph, what do we learn from this? The biggest takeaway here is you've got to learn to grow at a sustainable pace. And my grandfather used to have a great saying. He would say, don't get too big for your britches. And it's so true in the business world.

Many clients I know have gotten too big for their bridges. They didn't develop that solid infrastructure. That's the key you've got to do that. You've got to have a solid infrastructure. You've got to have solid processes. You got to develop your key people. Because as you expand, you cannot do it all on your own. And that's just the truth.

So that's number seven. Rapid expansion without proper infrastructure. Let's look at number eight. And this is a huge one as well. And that's lack of differentiation. I had a client with a web design agency. Listen, there's a ton of people out there doing that work. And this guy, he struggled to stand out. He was in a saturated market. And now all of a sudden AI comes along, and you got the big players with these big GoDaddy's and the rest of them Wix and all these, there's a bunch of them. But he wasn't standing out. Because he had no unique selling proposition. And if you don't have a unique selling proposition, it is really tough to attract and retain clients. And in nine months he closed his agency and went to work in IT. Gave up his dreams were shattered.

Thought he could make it, but he didn't stand out. He didn't find his marketing niche. Well, you might've asked him, Ralph, how do you prevent it? Well, the key is in planning and it's identifying your unique gift. What is it? And lean into that? You got to share with your customers a clear value proposition, so they know what sets you apart from the competition. That's why you got to explore your niche.

That's a big talking point these days. What is your niche? I hear it constantly. But it's so true of you don't set yourself out apart from the competition, you're going to fail and it's going to be ugly because you got to differentiate your products. So that was number eight, lack of differentiation. And last but not least.

And this one is enormous. I see this probably 70% of the time why businesses fail and it's burnout. Like I said, it's the most challenging thing to overcome. I had a client that ran a consulting business. And let me tell you, she worked 80 plus hours. Every way she spent all of her time working to grow her business.

And she was a talented lady. She knew her stuff. She was a laser focused on her business. But with those 80 and 90 and a hundred-hour work weeks, she starts to neglect her health. She lost her marriage. Her husband said to her, all you care about is that stupid business. You don't care about me at all anymore.

You're so focused on that. Everything is in that. She stopped going to church. She got consumed by chasing that almighty dollar. And guess what the stress finally peaked, and she had to step away from her business because of the medical issue she was having. She nearly had a nervous breakdown. And it was so sad for me to see it. So you might ask, what did she miss? Well, she missed taking care of herself. She missed trying to maintain that work-life balance.

And trust me, I'm a small business owner. I get it. It's not easy. But you got to at least work at it. She failed to nurture her relationship. She lost her husband over this.
And she learned what it is to have it all but have nobody to share it with.

And I nearly got to that same when I shared them on the show before. Now, I encourage you to go listen to that, but when you don't nurture your relationships, you don't maintain that work-life balance, you are going to fail.

And you've got to keep your faith. You got to grow your faith during that same time, you can't lose that connection. Sometimes you just got to be willing to ask for help. And I'll tell you about how you can get me to help you later. You don't have to go this alone.
And you might be saying, Ralph, what do all of these nine things illustrate?

They're common pitfalls. And remember. Being forewarned is being forearmed. Remember I say this all the time. Knowledge is power. You got to understand these challenges. Like I said, I always say this knowledge is truly power. If you knew these things are in your path, you got to implement strategies to address them. If you do, you can increase your chance of success.

See, there is hope. So, let me run down those top nine reasons again. Number one, lack of market research and planning. Number two, poor financial management. Number three, ineffective marketing. Number four, failure to adapt. Number five, poor leadership and management. Number six, ignoring those customer's needs. Number seven. We talked about that rapid expansion without proper infrastructure. Number eight. We talked about that lack of differentiation and number nine, burnout. But the big takeaway is this. Be proactive, build that strong foundation. Now tomorrow, I'm going to be talking about what do I do if the banks closed my account?

So don't be caught off guard with that. I'm going to share a wild story from my credit union days about a member who got money like it was a lottery machine pumping out. So that's a show you don't want to miss.

Now, maybe you're feeling overwhelmed in running your small business. But here's the truth. You don't have to face it alone. I'm here to help you. I can help you find financial freedom. I can help you break free of the bondage of debt. And at the same time, we're going to help you align that with your Christian values, because that's the key, or maybe you're feeling stuck like Linda. You're watching your dreams slip away. You're struggling with financial instability.

You got a business that's failing, you're living paycheck to paycheck. You're feeling frustrated. You're feeling hopeless. Maybe you're a small business trying to balance personal and finances with business needs. That's tough. Maybe you feel like you're taking one step forward and when you get pushed 4, 5, 6 steps back. But like I've said a couple of times now, there is hope. You can break free from this. Listen to me, you can achieve long-term success. And it starts with booking a call with me.

Just go to askralph.com. You'll see a banner ad, click on that banner, and schedule a call with me, and we'll sit down, we'll create a personalized plan. We'll look at where you are now. We'll assess where you are. We'll talk about your goals, what I call your big, hairy audacious goals. We'll put together a personalized plan for you to help you get to what you want to get too.

Not what I want to get to. Not what your neighbor wants to get to. What you want to get to. Because here's the deal. Everyone's situation is unique, and everybody's goals are different. You're never going to succeed if you have some cookie cutter approach or some one size fits all, read this gurus book or follow these five steps. You need a true financial roadmap.

So don't let another day go by feeling stuck or overwhelmed. Let's create that plan. Let's set a path to financial freedom and spiritual growth and renewal. Remember, my passion is to help you achieve financial success. I want to see you live out your dreams and grow in your faith. That's my mission field.

That's why I do what I do. That's why I turn on this microphone. I turn on this camera. I plan these episodes out because I want to see you live out your dreams. I want to see you grow in your faith. I want to see a move beyond that food, clothing, and shelter and into a place of self-actualization. Now that's a big term.

But what I mean by that is getting past the stuff that is keeping you from achieving what God has intended for you to achieve. And I know together we can master your finances from a Christian perspective, but all takes by you scheduling that call. So as I always end the show, I want to remind you this, stay financially savvy out there, and God bless you.

Narrator
00:26:38

Thank you for joining us on the Ask Ralph podcast. And with a simple click to subscribe, we'll invite you back to our next episode.

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