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The top 5 reasons a small business will fail

By December 16, 2016 October 22nd, 2020 No Comments
Employee Benefits

The top 5 reasons a small business will fail

By December 16, 2016 October 22nd, 2020 No Comments

There are some stark statistics relating to the survival of new businesses. Research conducted by Small Business Administration reveals that only half of new businesses survive for the first five years while only a third survive for ten years. That means 50% fail in the first five years! When you think about how full of optimism and excitement those business owners probably were at the outset, it is a sobering thought. So what are the reasons that some businesses fail and others succeed?

Here are our top five tips:

Cash is king – it may sound obvious, but the number one reason most firms fail is because they run out of cash. It’s often said that there are three aspects to running a business; getting the work, doing the work (in some ways, the easiest) and getting paid for the work! Money needs to be continually flowing into the business because if you can’t pay your bills, you will soon end up in trouble. Added to which, any form of expansion will need to be funded by long-term or working capital.

Don’t try to make decisions without sufficient management information – a brilliant idea is all well and good but if it is not based on solid information, the business will be doomed to fail. As anyone who watches Dragons’ Den will tell you, you need to know your numbers (inside out!). If you can always be aware of your gross and net margin and breakeven point, you’ll be making informed decisions.

No plan B – while it’s great to have a clear vision, you do need to be adaptable to changing circumstances. It’s also important to be aware of the risk in your business so that you can have a back-up plan, if needs be. Firms that are incapable of diversifying often fail.

Don’t have all your eggs in one basket – small businesses often start with just a few clients that they may have brought with them from another business. While it is always welcome to have a steady revenue stream from one or two main sources each month, it is dangerous to rely on them so try and avoid what is known as ‘concentration risk’.

Stay true to your core values – you probably went into business because you were passionate about what you were offering. Build your brand around those values as you will find that forms your ‘unique selling point’ and the reason your customers come to you. Yes, listen to what your customers say, seek regular feedback and act upon it but, at the same time, make sure your product or service always remains in line with your beliefs.

Sources
https://www.theguardian.com/small-business-network/2014/oct/28/top-reasons-small-businesses-fail
https://articles.bplans.com/6-reasons-your-small-business-will-fail-and-how-to-avoid-them/