Top 4 Causes of Small Business Failure

Most small businesses start with a challenge or a dream and a whole lot of hard work. Hundreds of thousands of new businesses are founded every year, and it’s safe to assume that the founders of those companies are hopeful they will withstand the test of time. And yet, whether it’s due to bad timing, bad luck, or bad business expense management, 50% of those companies will be out of business in a year, and 95% will fail within five years.

A business plan is an excellent way to get started, but to ensure that your business is more than just another sad statistic, consider four common reasons for small business failure, and what preventative measures to put in place to avoid these pitfalls.

Common Small Business Expense Challenges

Though sheer inexperience with running a company can certainly affect success, it’s important to know that even seasoned innovators have been known to encounter failure. Remember the Apple Pippin? That’s OK, nobody else does either, and that alone proves that even a company like Apple can’t hit a home run every time. Understanding some of the more common small business challenges, especially those related to expense management, is the first step:

  1. Lack of capital: When starting a new business, it is common to underestimate how much money will be required for a startup. This can lead small business owners to use personal credit cards for business expenses, thus beginning the slide down a slippery slope that can result in excessive personal debt.
  2. Inadequate expense controls: Whether the source of business capital is outside investors, friends, and family, or the business’s revenue, owners must keep a close eye on expenses to stay above water. When one considers there is up to $10.7 billion in unclaimed expenses owed to owners and managers in any given year, it’s clear that a disciplined approach to expense management is sorely lacking.
  3. Unrealistic revenue expectations: Revenue forecasting is more than a wish list of how much money a business owner hopes to bring in the door. A dynamic business plan is more important than ever in a volatile business climate because owners can’t determine how much to spend on growing the business without a reasonable understanding of future revenue.
  4. Time Lost on Administration: Those unfamiliar with the intricacies of company expense management may start out using paper receipts and spreadsheets to track business expenses. Forward-thinking business owners quickly recognize the inefficiency of this approach and shift to an automated approach; others take longer and end up wasting a lot of time. In fact, 63% of entrepreneurs spend at least one day every month on administrative financial tasks that include expense management.

Many of the reasons new businesses don’t succeed have more to do with financial management than with the business idea itself. Taking the time to get set up with innovative financial management tools could mean the difference between success and failure.

Control Cash Flow with Prepaid Business Cards

There is a steep learning curve when starting a new business. You may have a lot of experience in your particular area of specialty, but that doesn’t necessarily mean you have a firm grasp on how to handle cash flow and business expense management. That’s where the use of a prepaid business debit card solution to track cash flow can help you stay on track. Use available technology to manage the financial details, and you spend your time more efficiently on the work that grows your business.  

The dash™ Prepaid Mastercard® allows for simplified, mobile expense management in a dash. Learn more about the ways our prepaid card and integrated expense management app can help you grow your business.