By Al Litman

Last month I wrote about some reasons small businesses fail.  I’ll continue this month, and if there is space, talk a little about  some businesses you never thought would fail, but did. 

Mayor Al Litman

Poor debt management is a frequent reason for a business failure. There’s more to small business financing than just start-up capital and cash flow. 

You need to stay on top of any debt and ensure that your credit remains strong. 

It’s not uncommon for new entrepreneurs to assume some debt as a new business. You might have taken a start-up loan, and that can become problematic if you are not making enough profit to consistently make your payments. 

This can be even more of an issue if you used a hard money lender with high interest rates and a short pay back period. 

There are some small businesses that depend on one or a few customers. There is never a guarantee that they will be able to sustain your company.

Once you found a great customer, analyze how you won that customer, and see how you can apply those strategies to finding new customers. 

Most small businesses, have low profits in their first few years, but at a point profits can be so low you just can’t survive.  If you are facing inadequate profit, you need to look at ways of cutting costs, and you can also examine your pricing strategies. 

If you start by pricing too low, and you are selling a large volume of what ever, but still not making the profit you desire, your prices may be priced too low. 

You may need to test the waters by raising prices and see  how customers respond.  Competition is another issue.  I hear a lot about this in Mesquite when I’m told we have too many of a certain business.

Before even starting a business where you know there will be considerable competition, conduct a market analysis and see how their prices compare to yours and what they offer. 

Once you have a thorough understanding of your competitors, you can devise strategies to set your business apart from the competition.

This can include everything from offering competitive prices to providing a high-quality product or service. 

Consumers can be very hard to please especially when there is a lack of market demand.  This can come about quickly.  Even the best businesses can fail if there is no demand for their product. 

Market demand also fluctuates, so what’s in demand today can change by tomorrow.  You see this, especially in, the retail clothing business and related businesses that deal directly with the consumer.

Depending on the type of business, it’s very important to keep track of market trends and be willing and able to change direction quickly. 

Market demand is not easy to predict especially in the retail world.  I can speak about this with personal experience, as my family was in the retail shoe business, with styles changing nearly every season.  You didn’t want to be holding last seasons inventory!. 

The last item I’ll mention today sounds like a good problem, unexpected growth.  It usually means you are becoming successful, but it can pose risks if you expand too fast without a clear plan. 

I have seen this happen over and over.  This is where you need to re-visit your business plan and make sure that growth does not lead to not being able to deliver what  you originally set out to do.  Next month I’ll look at more reasons a business can fail and some ways to prevent that failure.

Al Litman is mayor of the city of Mesquite.