Avoiding the pitfalls: Key reasons why new businesses fail

Running a small business is not for the fainthearted – from navigating cash flow issues to tackling “Where’s my order?” messages, it’s a journey riddled with challenges.

What are some signs that your new business is failing?

No one likes to hear that their new business is failing. Yet studies have found that only 34.6% of small businesses make it to the 10-year mark.¹

Here are some early warning signs of business failure:

• Cash flow issues. Difficulty in paying bills or investing in growth is a common red flag. Here are some more causes of cash flow problems.
• Declining sales. A consistent decrease in sales can indicate your business is not resonating with your target market or is facing increased competition.
• Unhappy customers. If shoppers are leaving more one- and two-star reviews, it’s a sign there may be underlying problems with your products, customer experience, or customer service.

Let’s take a closer look at several key factors that may point to business failure:

Inadequate market research and planning

Do you know what products and services are trending in your industry? Are you familiar with what your competitors are selling? Misalignment with market demands can lead to disappointing sales and profit margins.

The good news is comprehensive market research can be a game-changer, giving you unique insights into your customer base. Couple that with effective business planning, where you can define goals, strategies, and potential challenges. Learn how to craft a business plan.

Pricing and cost mismanagement

Setting the right price for your products is often a balancing act. Price them too low, and you may not cover your costs or make a profit. Price them too high, and you risk alienating shoppers.

Common pitfalls like inaccurate cost estimations and overlooking hidden expenses can lead to financial mismanagement. The challenge doesn't end there — as the Consumer Price Index has steadily risen by 20% in the last few years, adjusting for inflation adds another layer of complexity.²

Knowing how to manage small business finances is key to any thriving business. This means conducting regular financial assessments that lay out all costs involved with running the business, from production to marketing to operational expenses.

Based on this evaluation, you may decide to:

• Implement dynamic pricing strategies, where prices adjust based on market demand, competitor offers, and other external factors.
• Explore alternative vendors to potentially lower costs.
• Find opportunities to streamline operations, like canceling unused tech subscriptions, which could lead to cost savings.

Still feel like you need an injection of cashflow after adjusting your pricing? Research different lines of credit, grants, and small business loans, such as PayPal business loans.

Payment processing challenges

Thanks to advancements in digital payment methods, today’s consumers increasingly expect choice, speed, and security when checking out.

So why do many small businesses still rely on complex and inefficient payment systems that cause abandoned carts? With more than 70% of online shopping carts abandoned in the U.S., this translates to billions in lost revenue.³

Some common payment processing issues that small businesses face include:

• High fees. Many payment processing services charge fees that can be substantial for small businesses, cutting into their profit margins.
• Limited payment options. Small businesses may struggle to offer different payment options due to technical or financial constraints.
• Complicated checkout processes. Cumbersome checkouts are common reasons for high cart abandonment rates.
• Delayed transactions. Slow processing can hinder business operations and negatively impact customer satisfaction.
• PCI compliance. Small businesses must ensure their payment processing systems are PCI compliant to avoid data breaches, which can lead to legal issues and loss of customer trust.
• Fraud. Failing to adequately protect against fraud can cause financial losses alongside a damaged reputation.

Check out how to tackle these six hidden problems with your payment processing.

Other contributing factors

Here are some additional reasons why small businesses fail:

• Inadequate marketing.  Small business marketing challenges, such as poor ad targeting and confusing call-to-actions, can leave a business invisible in a crowded marketplace.
• Operational management issues. Streamlining business operations is essential – from inventory mismanagement to subpar customer service, operational roadblocks can deplete precious resources.
• Neglecting customer feedback. Failing to listen to and act on insights from customer reviews and surveys can lead to missed improvement and innovation opportunities. To gather customer feedback, consider adding post-purchase email surveys to your customer journey. You can also offer an incentive for survey completion, like a small discount for their next purchase.

How PayPal's solutions can help

Knowing why small businesses fail in the U.S. is the first step to ensuring success. Next up: Finding solutions to prevent and address these common challenges.

As you focus on tackling your market research, pricing, and cost management issues, let us take care of your online payments. From ensuring your hard-earned customers don’t abandon their carts to managing operational costs effectively, PayPal’s comprehensive online payments solution is designed to work seamlessly in the background.

This way, you can dedicate more time and resources to the core aspects of your business, knowing that your payment systems are running smoothly and reliably.

Learn more about how PayPal’s custom checkout can help your business.