The 10 Most Common Reasons Small Agencies Fail

By | February 4, 2014
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Sheree TebyanianThis is a guest post from Sheree Tebyanian (@thereinventfirm), founder of Reinvent Firm, an Adelaide based marketing firm that helps small business owners with the right education and marketing tools.

Often, the people who know the most about why an agency failed are its clients. While business owners are often quick to blame the government, shady partners or financial institutions, they hardly ever blame themselves.

There are, of course, situations in which the owner had absolutely no control over what ultimately occurred, but that is rarely the case. Below, I share the 10 most common reasons why small agencies fail and tips to overcome them.

1. The Calculations Are Not Correct

Some agencies fail because there is just not enough demand for the services they sell, at their particular price point. Do your homework, and know current service demand and market rates. Then, build your service offerings accordingly.

2. Some Owners Create Obstacles for Themselves

Agency owners who are set in their own ways, risk adverse or try to please everyone usually end up with more problems than solutions. This is also true for people who are perfectionists, insecure, paranoid or just greedy. If you notice these characteristics in yourself, perform an attitude check and adjustment. Don’t let your personality be your downfall.

3. Too Much Growth at Once

Many otherwise successful businesses fail simply because their attempts at growth backfired. This can happen if an agency tries to expand into a new market that ultimately does not turn a profit, experiences financial woes due to too many loans or tries to grow too soon.

Instead, focus on calculated growth, in which the infrastructure and funding are in place to accommodate growth and the risks associated with it.

4. Inaccurate Accounting

It is impossible to run a successful business if you don’t know what is happening financially. To succeed, you need accurate financial recordkeeping and an accounting system.

A lot of inexperienced business owners mistakenly assume that the accountants who do their annual taxes are enough to keep track of their business’ finances. However, regular accounting is something that needs to be done on a daily basis by the agency owner or CFO.

5. No Rainy Day Fund

Anyone who has been through a recession knows that businesses can experience a rough patch at any time. Agency owners who fail to create a rainy day fund will have big problems if they suddenly lose a large client or important employee. Unplanned events like new competition and lawsuits can also spell disaster.

Put aside money on a monthly basis in case the unexpected happens, and avoid cash flow crunches later.

6. Being Too Average

No owner would ever call his or her agency average or mediocre, but we all know that not every business is the best. Seek ways to differentiate your agency in the marketplace, as a means to retain clients and attract new customers.

7. A Lack of Efficiency

Trim expenses, or risk too much overhead that eats into profits.

Negotiate for lower prices from suppliers, landlords and partners, and seek ways to streamline internal processes, to give your agency a financial advantage.

8. Bad Management Practices

Agencies that experience lots of internal arguments, staff problems or major disagreements usually do not fare well. Put a managerial staff in place that is focused and keeps the business running smoothly at all times.

9. No Plan for the Future

There have been many cases in which an otherwise successful business fails when it is passed on to a successor, or when there is no successor named before the original owner dies. Plan ahead, and train future leadership to run the business now.

10. A Dwindling Market

Due to technology advancements, it’s critical to stay up to date on industry trends and their implications on your business. Agencies that specialize in outdated services risk becoming obsolete, unless they adapt to the times.

What other reasons do small agencies fail? Share your experiences and thoughts in the comments below.