The Most Common Reasons Small Businesses Fail in Toronto (And How to Avoid Them)
Starting a business in Toronto is an exciting opportunity, but it’s also a high-stakes game. With over 97,000 small businesses in the city, competition is fierce, and not every business makes it. In fact, studies show that 20% of small businesses fail within the first year, and 50% don’t survive past five years.
So, what separates the winners from the ones that disappear? After being in business just shy of 10 years growing 437VAPES to 3 different locations across the GTA plus our newest branch of the brand 437LABS ... Let’s break down the top reasons small businesses fail in Toronto and, more importantly, how to avoid making the same mistakes.
1. High Rent & Operating Costs
📉 Why Businesses Fail: Toronto has some of the highest commercial rents in Canada. Many businesses set up shop in expensive locations without properly budgeting for long-term sustainability. Add in property taxes, wages, and utilities, and costs can spiral out of control real quick.
✅ How to Avoid It:
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Start lean: Consider shared workspaces, home-based businesses, or e-commerce first before committing to high rent. Remember, your cash is your company's oxygen. (More on this below)
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Negotiate lease terms that allow flexibility for expansion. Be a VERY strong negotiator!
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Look for up-and-coming areas where rent is still reasonable but foot traffic is growing. Booming Areas!
2. Lack of Market Research & Poor Location Choice
📉 Why Businesses Fail: Some business owners choose a location based on emotion instead of data. A beautiful storefront means nothing if there’s no demand for your product in that area. Opening a luxury brand in a budget-conscious neighborhood or launching a niche business in an oversaturated market are common mistakes.
✅ How to Avoid It:
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Use demographic research tools like Toronto’s Open Data portal to study your target area. Here's an example, but definitely research more!
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Test demand with an online store or pop-up location first before locking into a long-term lease. Some landlords are willing to give you the space for a limited time for a slightly (per month) inflated price, but better to pay for the month or two as a test than to lock in a full year (or longer) lease!
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If foot traffic is key, spend time observing real customer patterns in different locations before deciding. Park at a local corner and observe the people passing by. Where is their attention headed? Which signs are drawing most attention? Picking up on all this data and more can go a long way.
3. Poor Cash Flow Management
📉 Why Businesses Fail: Many businesses run out of cash before they have a chance to grow. They overinvest in inventory, hire too soon, or underestimate operating costs, leaving them with no buffer for slow months.
✅ How to Avoid It:
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Keep a cash reserve that covers at least 3-6 months of expenses.
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Focus on profitability before rapid expansion—growth means nothing if cash flow is negative.
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Use accounting software to track income, expenses, and cash flow projections.
4. Weak Online Presence & Marketing
📉 Why Businesses Fail: In 2024, if your business isn’t online, it’s invisible. Many Toronto businesses rely only on foot traffic or outdated marketing tactics, missing out on massive digital opportunities.
✅ How to Avoid It:
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Create a strong website & SEO strategy to drive organic traffic.
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Use Google My Business & local directories to ensure people can find you.
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Run targeted ads on Instagram, Facebook & Google to attract customers before they even set foot in your store.
You can have the best product in the world, if nobody has heard of it and nobody knows about it...it suddenly doesn't matter if it's the best or not. If nobody knows about it, its as good as non-existent.
5. Overlooking Competition & Industry Trends
📉 Why Businesses Fail: Markets change fast, and businesses that don’t evolve get left behind. Whether it’s new competitors, shifting trends, or regulatory changes, failure to adapt is a death sentence.
✅ How to Avoid It:
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Stay obsessed with industry trends—follow leaders, join forums, and attend networking events.
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Study competitors not just locally, but globally to see what’s working.
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Be ready to pivot if customer needs or market conditions shift.
Photo by: AndrewTNeel
Final Thoughts: The Key to Surviving & Thriving
Toronto is a goldmine for small businesses, but only for those who plan smart, adapt fast, and execute well. The businesses that survive and scale are the ones that: ✅ Keep expenses under control ✅ Choose locations & strategies based on data, not emotion ✅ Master their cash flow & marketing game ✅ Stay ahead of trends & competitors
Avoid these common pitfalls, and your business won’t just survive—it’ll dominate. Stay locked in for more business insights from 437VAPES, where we bring you the realest takes on business, culture, and entrepreneurship. 😉🔥Don't forget to follow us on all the socials @437vapes