Nobody starts a business with the intention of failing, but the facts indicate that quite a few new businesses fail within the first 2 years. This is startling, why should this be?
The following are some of the more common reasons.
A Man With a Plan
Every business should have a business plan, to show it knows where it wants to go. A business plan considers the finances, customers, markets, suppliers, products and risks of a business. It should not be done simply to raise finance, but to show that a business is sustainable; that, for instance, you can provide a service, pay your suppliers, taxes, and still have enough for your personal requirements.
Reason for failure: no business plan, no idea where the business is heading, no idea what the break even point is, and not saving for tax bills such as PAYE, VAT or corporation tax.
Give the People What They Want
Market research is a good way of determining whether a business will succeed. Be realistic. If you have a great new product, don’t just ask your family and friends (who won’t want to offend you), get some critical feedback too. If you’re opening a shop, make sure you’re selling what people want to buy, not what you want to sell.
Reason for failure; providing a service for which there is no or little demand, or is in the wrong area.
Mind the (Expectation) Gap
If you think that working for yourself is easy, then you may have a rude awakening. The vast majority of businesses we have come across over the years succeed due to a number of factors, top of which is often motivation and determination. The buck stops with you. It is not uncommon to work many late nights and weekends, get stress from customers and suppliers, and generally feel as though the world is against you.
Reason for failure: expecting that ‘working for yourself’ includes an option to stay in bed if you don’t fancy working and still expecting to be paid!
Cash Really is King
You hear this time and again, and that’s because it is true. If you don’t have enough cash to pay your suppliers, staff, landlord, you will struggle. Cash flow is the blood that gives business life. Profit is not enough.
Reason for failure: running out of cash.
Given the current lack of jobs, many people are turning to self employment as a way to make money. Unfortunately, there are pitfalls along the way that can trip people up. Even seasoned entrepreneurs still get things wrong. It is useful to realise that advice and help is available from a variety of sources, which can help steer businesses through some of the trickier times. Even if help costs money, it may still be preferable to finding out the hard (and possibly expensive) way.
Reason for failure: trying to do everything yourself.
So there you have it, a few reasons why businesses fail. They’re not mystical, but it is easy to get swept along with a new business, and sometimes it makes sense to step back and make sure that things are going as they should.