What Are the Top Reasons New Businesses Fail?

Did you know that only half of the new businesses survive during the first five years, and only one-third of new businesses survive for the first ten years? When we look at the opposite of this relationship, we can deduce that if only 50% of new enterprises survive for their first five years, the other 50% fail in their first five years. We can also conclude that approximately 65 percent of new enterprises fail before reaching the ten-year mark.

Additionally, eight out of every ten enterprises fail during the first 18 months of operation (Forbes, via a Bloomberg study). What are the reasons businesses fail to prosper when they are given a 50/50 chance of survival and the assumption that there is a market for their product or service?

This post looks at some of the common reasons small businesses fail, and whether or not you can avoid making the same mistakes as those that have gone before you.

Lack of A Good Business Plan

This reason is especially true for brand new small business owners. On paper, a good business idea may not work in reality. This doesn’t mean you should ignore your passions. Instead, it means you need to do a little research and business planning.

A business plan that includes strategic planning forces you to define your project’s UVP (Unique Value Proposition). It also raises some questions you need to be able to answer to including;

*How will you stand out?

*Will you fit into the market?

*How strong will your brand be?

*Who is your ideal customer?

*What is your strategy?

*How will customers find you?

*How long will you be able to sustain the business before you make money?

*How can you stretch your cash?

*What expenses can you expect in your first year?

When creating your business plan, ensure that you are utilizing data insights in order to answer the above questions and stay on top of developing industry trends. You can collect, scrape, and mine necessary data from across the web by using innovative tools including one of the proxies from this socks5 proxy list that will allow you to bypass internet restrictions (for example, geo-location blockers) and improve your privacy and anonymity online by only showing the IP address of the proxy, not your own IP address. You can also simultaneously collect data via more traditional means such as customer or target demographic surveys in order to cover all bases. Any collected data can be used to support or justify decisions within your business plan.

Poor Financial Planning

To succeed in business, you must know exactly where your money comes from and goes. A lack of a contingency funding plan, or a reserve fund, can also cause your company to fail. Managing cash flow, taxes, expenses, and other financial issues can be difficult for new business owners. Poor accounting leads to business failure.
 
If you are a business that works with other businesses or individuals, then you need to keep track of payments from them and to them. If an associate of yours does not pay at the scheduled time and you find that it is eating into your profits causing your business to take a hit, then using people tracing services may just help you if you lose track of them and cannot find them yourself to retrieve your money.
 
You can avoid this issue by using a professional accounting system to record and monitor your financial transactions – it is every cent you spend and everything that comes into the company. Alternatively, hiring an accountant or outsourcing your financial services can help you keep top of your records and maintain control of your personal and business finances.

Lack of Protection

How are you protecting your business from external or even internal threats? You might feel like you are invincible, but all it takes is for one mistake to ruin everything you have worked so hard for. This could be an accident in your retail store, and the injured party sues. Or it can be choosing the wrong car insurance for your business, and you are left to pay for damages after a crash and so on.

Make sure everything you have built is protected by the right small business insurance provider for your company, and you have legal protection for any claims that could be put through the court against your business.

You need to consider all the insurance premiums available as a small business owner and consult attorneys to assist you with protecting you, your business, your employees, and your customers.

Inability to Hit Sales Targets

In some respects, nothing is more damaging to a fledgling business than failing to meet its sales targets.

When you rely on a single large customer for too long, for example, this can happen. A good example is if you run a small cafe that relies on passing trade from local colleges or schools when school is out for the holidays, how will you make up the custom to keep going?

Obtaining analytic insights from existing data and using those insights to influence your sales plan are the only ways to ensure that you will meet or exceed your sales targets in the future. A high-quality point-of-sale system is an excellent place to begin, as can many SaaS tools on the market that can look at all your data and point you in the right direction. 

Poor Management

Another typical reason for small business failure is management or owner ineptness. In many small businesses, especially in the first year or two of operation, the owner is the only senior-level employee.

While they may have the skills to design and market a profitable product or service, they potentially lack management skills and lack time to manage others effectively. Without a committed management team, a business owner is more likely to mismanage money, hiring, or marketing.

Smart business owners outsource tasks they can’t do well or don’t have time for. A solid management team is one of the first things a small firm needs to survive. Business owners must be confident in each manager’s knowledge of the company’s operations, present and future workers, and products or services.

Expanding Too Rapidly

On occasion, a new business grows too rapidly to keep up. You open a website with a hot product and are immediately flooded with orders you can’t fill. Maybe the reverse is true. You’re so sure your product will change the world that you order way too much inventory, and now you can’t sell it. Both options are sure-fire ways to fail.

Business expansion requires as much strategic planning as day-to-day operations. Commercial franchises such as fast-food restaurants and convenience stores do extensive study and planning before starting a new business. Before moving further, they assess local and regional demographics, spending patterns, and future growth plans. To succeed in business, you must do the same.

While it can be tempting to jump in the deep end and push through with getting your business off the ground before your enthusiasm wanes, but in all honesty, you need to take your time, assess all aspects of the business carefully and methodically before you begin trading to ensure that you don’t become another statistic of failed businesses across the country.