It is generally accepted that half of new businesses fail within the first year, with a higher percentage failing to make it past the five year mark. With this in mind, here are a few of the main reasons why small businesses fail, based on the experiences of the Bytestart team.
- Lack of research – possibly the main reason why so many small businesses fail is due to a lack of planning and research. Although a business idea may seem to be “brilliant” to a potential business owner, how brilliant is it in reality? You need to establish if there is a market for your idea, product or service, and how profitable it would be to turn your idea into a reality.
- Funding – many business owners use their own funds during the startup process. Other businesses may need to source extra funding from angel investors, banks and other lenders. Again, investors who are not related to you will need to be convinced that the startup idea is a good one – which is why you should take time on research before starting up, and have a business plan in place before seeking further funding.
- Dedication – from our experience, it is very hard to set up a new business unless you are 100% committed. Working a 9 to 5 job and putting a few hours in at night, or weekends, is unlikely to result in a flourishing new enterprise. For many people it is impossible to abandon the day job and jump into the unknown, however successful business owners will be prepared to take some risks to realise their dreams.
- Cash flow – it is essential to keep on top of your business cash flow management – late payers can cause havoc and even threaten the future of your enterprise if invoices go unpaid for too long. You must always keep funds aside to settle your tax bills, and don’t be reluctant to seek help if you are concerned about the financial health of your business – you are far more likely to survive if you face up to cash flow problems early on.
- Staff – you need to have the right people doing the right jobs to succeed. Employees need to be managed properly, and feel rewarded for their efforts. Many small businesses start off with one or two people doing all the jobs (from accounting to sales and even technology), however there is a danger of getting swamped by the sheer volume of work. Paying for other people to help will often pay dividends, both in providing new expertise for your business, but also by freeing up your time to concentrate on your areas of interest.
Of course, there are dozens of other reasons why new businesses fail – from poor sales & marketing, to unexpected bills, and changes in market conditions. Do feel free to browse our main sections for more information on how to set up and run a successful small business.
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