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6 common reasons why some small businesses fail

By July 8, 2019 No Comments
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Closed signNo one starts their own business because they want it to fail. That’s obvious. But it’s a sad fact that not every small business survives the challenges which confront them daily.

We try to keep things positive here at Boost Capital, so we haven’t written this post to scare you. We just want to make sure you’re aware of the potential pitfalls so you can avoid them as much as possible. We want to see you succeed!

With that in mind, here are the most common reasons why small businesses fail based on the results of a survey conducted by the US Bank:

#1 Poor cash flow (82%)

Here, we think of cash flow as being like a business’s heartbeat. The two are quite similar! Like a weak heartbeat, a weak cash flow can mean your business has less chance of surviving.

Your cash flow will go up and down all the time depending on different circumstances. Take your eye off the ball and you might find yourself in a tricky situation.

Keep an eye on your cash flow – make sure your expenses don’t exceed your income. Check in with your bookkeeper and accountant as often as you can so you can identify any potential issues quickly and fix them.

One of the most common reasons businesses take out a loan is to manage their cash flow. If you need a little help yourself, apply online for a quick decision.

#2 Not enough money to start with (79%)

We’ve all heard the stories of entrepreneurs who started their businesses from nothing. For example, Alan Sugar built his empire from very humble beginnings, selling TV aerials from the back of a van!

But this kind of turnaround isn’t going to be possible for everyone. For most businesses to be a success, they need a hefty injection of cash at the beginning. This is particularly the case for businesses which need to go through an extensive R&D phase before they can start making money.

Getting finance for a startup is easier than it used to be thanks to alternative finance. Today, you can get funding from angel investors, crowdfunding or peer-to-peer lending. You might also be able to get a startup loan from the government.

#3 No business plan or lack of research (78%)

Running a business isn’t an easy job, as I’m sure you know. There are lots of different variables and plenty of things you should plan for. And that’s exactly what some businesses lack – a plan.

A detailed, well-researched business plan is a vital document if you hope to weather the challenges that every business faces at one time or another. It’s also important to have on-hand if you’re ever looking for capital – investors will want to see a business plan before they invest.

Strictly speaking, there’s no hard and fast rule in terms of layout and structure for a business plan. But it should include the following things at a minimum:

  • An executive summary: This is a top-line overview of your business, analogous to a personal statement in a CV.
  • A description of your products and services: This is where you can expand on the overview by outlining exactly what it is your business does. Make sure you include what makes your products and services so special – what makes you stand out from your competitors?
  • A marketing and sales strategy: Go into detail about how you plan to market and actually sell your products and services. This is where you’ll need to include your market research, so you can prove that you know what audience you’re hoping to target
  • Details about the team: Describe who the management team are and any other key personnel involved in the business. This doesn’t just have to be handy information for potential investors. It can also help to clearly define who does what so everyone knows their roles and responsibilities.
  • Financial forecasts: It’s important to make forecasts for the future as part of your business plan. Essentially, you’re translating everything you’ve said in the other sections into numbers.

If you need a bit of guidance, Entrepreneur have a guide on how to write the perfect business plan.

#4 Not pricing properly (77%)

You’ve got a great product and a clear idea of your market. But if you don’t charge your customers enough for what you’re selling, you’ll quickly fall into problems and your business will fail.

Trying to stay competitive while earning a decent margin is a bit like walking a tightrope. Charge too much and your sales might take a hit. But charge too little and your cash flow will suffer.

Make sure you have a very clear idea of your business’s fixed and variable costs. You should also do some market research to find the “sweet spot” when it comes to your prices.

#5 Being too optimistic (73%)

We’re an optimistic bunch here! We see small businesses across the country grow and thrive with the help we give them. But there is such a thing as being too optimistic.

It’s easy to let yourself get carried away by the excitement of starting and running a business. And for some business owners, that can be fatal to a business’s success.

If you overestimate your sales projections and underestimate the risks and costs involved in acquiring them, you can quickly find yourself in trouble.

Make sure your feet don’t leave the ground. Plan for the worst-case scenario and be conservative with your projections. Do your homework so you know what hard work is involved and don’t underestimate the challenges you may face.

#6 Not getting help when you need it (70%)

One of the hardest things to do as an entrepreneur is to recognise when you’re out of your depth and need a little help. In fact, it’s not just something that affects entrepreneurs – it’s just part of being human!

Try to be honest with yourself and don’t be too prideful. If you’re facing a challenge and you don’t feel confident you know how to face it, ask for help!

There are plenty of places to turn for advice, especially online. Google is a good place to go to find tips and guides for specific problems. There are also forums and online communities which cater specifically for entrepreneurs in need of help.

Another good way to get help is to meet with other business owners face-to-face by going to networking events. You never know – you might even build new relationships which could pay off in other ways in the future!

Further reading

Speak to a member of our business loans team on 0800 138 9080

More businesses than ever before are looking to Boost Capital for their business financing needs. To learn more about how our UK small business loans work or to explore the business financing options that are available to you, contact us today!
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