Why most small businesses in Canada fail in the first year

It’s always difficult starring a small business, spending all of your free time making it work to find out that at the end of the year or even sooner for some business owners that the business is simply not working and is a failure.

Most small businesses in Canada fail within the first year due to a number of reasons, and often it’s the same reasons:

• Inexperience of the business owner
• No business or action plan
• No capital/funding
• Bad Idea

When starting a small business and becoming your own boss you know that you more likely have to work much harder at it then you would at a 9 to 5 job. Why? Well because the responsibilities of being your own boss, especially so early on in the startup process means that you don’t, or most likely don’t have help. You as the business owner are responsible for paying all of the bills, cleaning up, handling your day to day operation, thinking about inventory, about your customers, about the money…everything (even buying paperclips).

It’s no wonder many small businesses end up failing – it’s a lot of friggin’ work.

There are those who simply are not experienced or knowledgeable enough to be a business owner and can’t focus on proprieties, thus slowly leading towards a failure. A lot of times it can’t be avoided as not everyone is cut-out to be a small business owner. But with the proper training, some education and a business plan, you can overcome the obstacles.

One of the greatest reasons why many small business owners fail in the first year of business is due to the fact that they didn’t plan out the business carefully. Saying what you want your business to be like and actually doing it are two different things. Similar to the start of the year resolution of losing weight. Most people say, “im going to lose 25 pounds this year”, and come the end of the first month most people didn’t start yet, have given up or lost interest – and why? Because no action plan was put in place.

Having a properly developed business plan can help your new small business overcome the obstacles that are often seen as the cause of business failure. So before you decide that a business is for you and you get right into it, stop – and create a business plan. While it may be hard to make a business plan, tools such as our Business Plan Builder Tool can really help.

Other huge reason why so many small businesses in Canada fail in the first year is due to the fact that they have little to no money to be able to invest in startup costs and operational costs. And even those who have a lot to invest, often over-invest or don’t invest in the right things during the startup process which results in business failure.

If you’ve taken the time to create a business plan you will most likely be able to tell from your projected financials and estimations how much money you will need in order to keep your business healthy. On top of that, most startups should have 20 to 30% in additional funding as back-up money, just in case something doesn’t go right. And everyone who has a business or who has started a business before, knows not everything goes perfect.

When looking for funding there are many sources that can help you. First consider personal savings, lines of credit, family and friends, banks, private investors and even government funding agencies. In a small business startup, every dollar counts – and the more funding you have or are able to get the more likely you will not have to worry about funding as one of the reasons your business may fail – that’s if you manage your funding correctly.

And one of the last reasons we are going to discuss as to why businesses fail in the first year is simply having a bad business idea. Not every business works, we know that. But there are many businesses that are simply bad idea. One way to test out your idea before you invest a lot of time, money and effort into your business consider testing our your idea on a smaller scale. Perhaps try discussing it with your family, friend, co-workers. If the idea is brand new, consider why nobody else is doing it? A business plan comes in handy in situations like this as it can help you conduct a SWOT analysis which determines your strengths, weaknesses, opportunities and threats, along with a competition and market analysis you may know if your business has the potential for success or not.

In order to avoid having your small business in Canada fail within the first year be sure to come up with a good business idea, create a business plan, get funding and educate yourself on the idea of being a small business owner. Prepare yourself for the responsibilities.