Opinions differ greatly over the exact survival rate of new
businesses in the UK, but without doubt the failure rate remains
depressingly high. Some claim that more than half of small businesses
fail in their first year, while 90% don’t last two years. So what are
the key reasons why they don’t make it and why do more established
businesses go under? In no particular order…
1 No real demand
The ‘build it and they will come’ approach to starting up isn’t
advised. You should only start up if you have firm evidence of demand.
Start-ups that don’t have products people want to buy usually come to an
end when the owner’s savings run out.
- Find out how to carry out basic market research.
2 No business plan
One of the best ways to prove the viability of your business model is
to put together a sound business plan. There are no guarantees, but if
your numbers are realistic and your idea can be shown to work on paper,
at least you’re not dealing with wholly unrealistic assumptions. Fail to
plan and you plan to fail.
- Find out how to produce a start-up business plan.
3 Lack of funds
If your new business is ‘under-capitalised’ from the start and your
sales fail to live up to expectations, you’ll soon run out of money,
which is likely to spell the end for your business (and don’t expect the
bank to help). What if you don’t make any sales for months – will your
business survive?
- Find out about start-up funding options.
4 Wrong attitude
Just because you want to start a business doesn’t mean you’ll be good
at it. Knowledge and skill can be gained, but if you lack drive,
commitment, won’t make sacrifices and you’re lazy, running a business
won’t be for you. That said, hard work and determination alone is not
enough to succeed in business.
- Ask yourself this – Is running a business really for you?
5 Lack of advice
If you’ve never ran a business previously, there will be many times
when you won’t know what to do. Fortunately, others can help. Access as
much free reliable advice as you can. The bad news is, there’s a lot of
bad advice out there, too, so beware.
- Find out about sources of support for start-ups.
6 Growing too fast
Performance in your first year might exceed your expectations, but
investing heavily to try to grow at the same or even a higher rate can
leave your business overstretched and with bills it can’t afford to pay.
7 No plan B or C or D
Your initial ideas might not bring the results needed to keep your
business afloat, so you must remain agile enough to make changes where
necessary until things begin to work. In business it pays to have other
options up your sleeve.
8 Inability to forecast or budget
These are important skills that can enable you to produce a business
plan and spot when a potentially serious cashflow problem is heading
your way. Failure to accurate forecast sales can lead you to make
terrible decisions based on false assumptions.
- Find out about budgeting and sales forecasting.
9 Underpricing/overpricing
Successful businesses get their prices right. Go too low and you
won’t make as much profit as you could. Furthermore, you could struggle
to increase your prices. Go too high and you’ll put off potential
customers. When setting prices you’ve got to know your market.
- Find out how to set prices.
10 Excessive start-up costs
These create an unnecessary burden from the off, by making it much
tougher to turn a profit. It’s reckless to waste money on things your
business doesn’t need. You must minimise your start-up costs and remain
lean and efficient as your business develops.
- Find out more about how to limit your start-up costs.
In your experience, why do so many new businesses fail and what survival advice can you offer to start-ups?
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