Most businessmen are alarmed to hear that 80 percent of small businesses fail within the first five years of being started. So why does this happen?

The main reason why small businesses fail is poor planning. This includes unplanned business administration, unplanned financial management, and unplanned marketing efforts.

Everyone who is thinking about starting a small business should make a detailed business plan at the very onset. A business plan is your crucial planning tool and defence against business failure. While you work on it, you must also do the market research which is crucial to find out whether or not there is a market for your product.

The good news about why small businesses fail is that business failure because of poor planning can be completely avoided. You need to know what kinds of planning you should do before you start your small business. It is merely a matter of learning about what works and what doesn’t. So it pays to never stop learning.

In the words of Robert Kiyosaki, (famous American investor, businessman and self-help author) “It is not money that makes money, it is knowledge that makes money.” Without the right business knowledge you can put all your money into your business and yet never meet with success you are seeking.

Reasons Why Small Businesses Fail

Inadequate market research: Though you might really feel passionately about a particular product, you need to find out if there is really a market for the product or a service. Remember that the business is not about you, it’s about your potential customers and their needs.

Unplanned finances: You must sort out the money matters before you start your small business. You need to calculate how much money you need to carry out your daily living expenses and how much money is required to run your business. You cannot ignore the demands of your new venture, and nor can you ignore your bills. If you do not have enough money at hand to finance your business, you have to organize enough money to cover all your financial needs.