Why So Many Small Businesses Fail: How to Avoid Failing

Figures show that entrepreneurship in the UK is booming – with statistics from the Department for Business, Energy and Industrial Strategy confirming that there are a record 5.5 million businesses in the UK today, an increase of 23% since 2010.

Of those, the government data shows that 76% of businesses only employ the owner.

Unfortunately, studies also show that almost half (four out of 10) small businesses don’t survive to year five.

So why is this?

What causes small businesses to fail and what can you do to ensure your new enterprise goes from strength to strength?

#1 You’re in the wrong industry

The sector you choose has a lot to do with whether your small business will be thriving or dying after year one.

Property businesses are most likely to fail after year one, according to Ormsby Street’s business survival calculator.

Food services and business admin all have poor long term survival rates.

How to avoid this pitfall

Do your research when you land on your business idea.

Investigate the sector and conduct a thorough analysis of the marketplace before you go full steam ahead.

What are industry predictions for the next one to five years?

Is confidence in the sector high?

Are there a large number of similar businesses struggling in your area?

#2 Cashflow

Poor cashflow is the small business killer and one of the biggest causes of small businesses going under.

This will be an all too familiar scenario for some – you’ve delivered a product or service, paid your own supplier but are waiting for your own customer to pay you.

Suddenly you have a deficit and a hole where cash used to sit that you need to plug.

Many a small business owner will bemoan the hassle of late payment – with some saying larger firms are often the slowest to pay.

How to avoid this pitfall

You need to address cash flow issues as soon as they start to become a problem and have a plan in place to ease woes so you can continue to trade if you late payments from customers cause you headaches.

Be strict about payment terms with clients from day one and make sure you have a plan of action to deal with non-payment, such as legal remedies to recover funds due.

#3 No marketing

Marketing is the lifeblood of any businesses but when you’re juggling a mountain of to-dos, taking time to update your website or send that email can seem like a job that can wait.

The result is that you fail to build awareness and will struggle to find customers.

How to avoid this pitfall

As a new business, funds are probably tight too but investing in marketing should be non-negotiable.

If you can’t do it yourself, find a marketing service you can trust and be consistent and proactive about marketing.

Whether that’s running Facebook ads or attending local networking events, you need to make marketing a priority to see your small business succeed.

Trevor McClintock

Trevor McClintock

Trevor McClintock is an award-winning business consultant and entrepreneur with a proven track record of growing businesses and skyrocketing revenues. Are you ready to take your business to the next level? Get in touch with Trevor today!

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