So what are the other key reasons why many new businesses fail to
survive their first two years of trading and why do more established
businesses go under? Once again, in no particular order…
1 Poor cashflow management
Inability to manage cashflow is the most common reason businesses
fail. Many profitable and seemingly successful businesses have gone
‘belly-up’ because they haven’t had enough cash to pay their bills on
demand. Lack of access to working capital is a major business killer.
- Find out how to manage your cashflow.
2 Attitude to risk
Some owners are overly cautious, which can hinder their new
business’s chances of getting off the ground. In other cases, taking too
many risks can quickly lead to disaster (see 6). If in doubt, when it
comes to big decisions, it’s probably best to err on the side of caution
(well, most of the time…).
3 Poor customer service
No matter how great their products are or attractive their prices,
successful businesses prioritise customer service. Get it wrong and
potential customers will vote with their feet. Offering superb customer
service is one way to set yourself apart from competitors large and
small.
- Find out about how to provide high-quality customer service.
4 Wrong employees
Small firms can’t afford to carry baggage, especially in the early days. Each team member must
add value, excel at what they do and their commitment to the cause must
be beyond question. Recruiting the wrong people usually proves to be a
costly mistake.
- Find out how to build and manage a good team.
5 Poor marketing
Successful businesses know who their customers are and what they
want. Their products are tailored perfectly to their customers’ tastes.
They also know how best to let customers know about their products and
services and the channels through which they need to sell.
- Find out how to market your business.
6 Inability to sell
If you or others you employ don’t have the skills to sell, your
business will fail. Simple. Selling doesn’t come naturally to everyone.
If you can’t do it, find someone who can and pay them to do it for you.
- Find out more about how to sell.
7 Wrong location
This can affect all business to an extent, but for those that rely on
footfall, picking the wrong location leads to disaster. Sometimes poor
decisions are made to save money, when paying more for a better location
could deliver more sales.
- Learn how to find commercial premises.
8 Underestimating competitors
If you don’t believe you have any competitors – think again. And the
bad news is some of them will have been open a lot longer than you,
which means they will already have customers. You should know who your
main competitors are and what they offer, but – underestimate them at
your peril.
- Find out how to research your market.
9 Poor financial management
Not everyone has a head for figures, but if you don’t control your
business’s finances you’re asking for trouble. Common misdemeanors
include not getting invoices out promptly or chase them when overdue;
failing to separate personal and business expenses; borrowing money out
of the business for personal use; not properly keeping track of
expenses; failure to keep accurate or up to date books. At all times you
should have a good idea how much your business owes and how much it is
owed.
- Get advice on accounting and bookkeeping.
10 Other reasons
Poor day-to-day decisions by people who aren’t cut out to run a
business. Partnerships that don’t work. Inability to communicate ideas.
Unwillingness to listen. Fear of success or failure. Too much or not
enough confidence. Procrastination. Rash decisions. Inability to cope
with pressure. Domestic distractions. Failure to learn from mistakes.
Poor time- and task-management. Market conditions and wider economy. Bad
luck.
In your experience, why do so many new businesses fail and what survival advice can you offer to start-ups?
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