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| Filipino startups are prone to bankruptcy. Why? Read below and find out. |
Business is one of the most powerful way to create wealth. If you managed to create a successful business, then I'm pretty sure that financial freedom is coming up next.
But in order to become successful and profitable, you need to understand the fact that small business have a huge failure rate.
According to SBA (Small Business Association) 22% of small businesses close down before they even reach the first year. Another 55% will trimmed before the fifth year and 25% before the tenth year.
In our local market conditions, small businesses have higher mortality rate because the competitor are always aware of your presence and even ready to devour you alive.
So why do Filipino startup businesses fail?
In this post, we will talk about some of the major reasons why a business don't succeed and how you can avoid it yourself.
1.) Wrong Location
"Dito ko na lang itatayo ang milk tea shop ko. Sikat naman 'to ngayon kaya pihadong dudumugin ako ng madlang pipol," Eduardo told himself while overseeing the renovation of his soon to be opened milk tea shop located in the middle of nowhere, far away from school, enterprises, and major foot traffic.
Eduardo doesn't mind if there's not much people around. He's confident that his social media marketing will drive traffic to his shop, and the taste of his freshly blended milk tea and the amazing ambience is enough to make the customers come back for more.
Eduardo's first week of operation can be considered as a huge success! His family and friends are there support his new business and that support alone is generating enough sales.
Days and weeks passes by, Eduardo's milk tea shop is now experiencing a sharp decline in sales. The Facebook and Instagram advertising is failing to convert into sales because there's a lot of milk tea house competing for customer's attention.
The human traffic is terribly low, the sales can't even reach the acceptable quota in order to survive the monthly expenses.
After two months of struggling, the milk tea store Eduardo is hoping to succeed, finally closed down for good.
Choosing the wrong location for your startup business is much comparable to suicide. The number one rule when you start a business is to accumulate as much sales as possible...
To do this, you need to attract more customers to your establishment and turn those customers into sales!
A business located in a place with a little to no human traffic will generate lower sales. This will be the catalyst for shrinking profits and eventually, bankruptcy is just waiting around the corner, ready to devour you and your business.
Social media advertising can help but it is not enough to supplement the lack of human traffic that can be converted in to important sales.
2.) Spending your capital
"Sige bilhin mo lang ang gusto mo at marami pa akong pera dito," Bernad told his girlfriend while they're inside a fancy department store.
Bernad owns a meat and frozen goods stall in their local market. The growth of his business is commendable, it is all because of his competitive pricing and smooth sales talking.
Everything's perfect except Bernad's mediocre money management skills. He spends in uncontrollable fashion just to impress other people and feel good about himself.
"Kikitain ko din naman ang mga pera na 'yan!" is his favorite motto just to justify his luxurious spending habits.
Little did he know, he's spending way more compared to his earnings. He is already using his own working capital and he doesn't have any idea about it!
But alas, fate played its hands.
November 2019, the breakout of the disease called African Swine Fever (ASF) ravaged the social media feeds, print media and mainstream news.
The result is catastrophic to Bernad's meat and frozen goods stall.
His sales remarkably dropped, losses stacks up as days passes by. Because of Bernad's horrible spending habits, his capital is already dwindling like a frail old lady.
Majority of entrepreneurs who owns small and medium businesses often neglectcs the most important thing, you must always pay yourself first!
Use the salary to budget your daily needs and expenses. Tighten your belt if there's a lot of bills to pay, avoid eating out or going out if there's no budget for it. Learn how to save money because it is a must if you want to become financially free.
This way, you can avoid spending the business's working capital, giving it a healthy cash flow and making it a profitable venture.
3.) Debts Mismanagement
Dan owns a corn and vegetables farm in Tiaong Quezon. The agriculture biz is his forte and the good weather and booming local economy makes his venture a profitable one.
But the problem is, Dan's agribusiness is swimming in debts. To pay for his previous debts, he will file a new loan on their local cooperative.
If the loan is already nearing its due date, he will then again, file a new loan in another cooperative, or even loan sharks just to pay it back.
And the cycle goes on and on...
The cycle of debts never seems to stop and that makes him feel like his own business and future is hanging in a thin, fragile thread.
This gave Dan anxiety and insecurity. In his point of view, his hard work and perseverance means nothing at all! Oh, his existence is made in order to pay debts! What a depressive thought.
Debts is a very important tool that can be used to leverage your business. With the right use of loans, you can sustain the growth of your business and make it more profitable.
Debts can boost your business's sales, inventory and overall growth. Loan can be used to expand your business and expansion means more sales and more profits that can be used to pay your existing debts.
The trick here is to avoid paying your debts with a new debt especially if the new loan has a higher interest rate.
As much as possible, pay your loans using the profits from your business before creating a new debt. This way, you can be free to break from the cycle of debts before it eats you out.
There you have it guys, the three deadly sins of Filipino entrepreneurs that can bankrupt a business. Here's a recap...
1.) Starting a business in the wrong location. Always make sure that you start in the right spot and that is in the place where your target market lurks or passes by.
2.) Spending your own capital is not a good idea if you want to make it big. Learn how to pay yourself first and create a business records in order to track your sales, profits, operating expenses and household expenses.
3.) Manage your debts, use it for your growth and expansion and not for your own luxurious needs. Pay your loans with highest interest rate to avoid compounding of debts that will definitely grinds you as time passes by.
That's it guys! That's the three major reasons why a Filipino startup business fails. Learn from it, avoid it at all cost and be better.
Cheers!
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