4 Common Reasons Why Businesses Fail & How To Avoid Them

According to some American statistics, roughly 20% of small businesses fail within the first year of operation. This can be caused by a number of factors: financial constraints, burnout or issues with the workforce. By the time year 5 has been reached, only 50% of small businesses will continue, and this figure drops to a third after 10 years.

Whilst these figures are quite scary, don’t let this put you off starting up a new business and becoming an entrepreneur. Building a thriving business takes lots of hard work and patience, and just being aware of these 4 common reasons why businesses fail will help you.

1. There is no demand for your product or service

Before you launch your business it is important to test the markets. There is no point in investing lots of money into a product that is just going to flop as soon as it hits the shops. The demand needs to be there in order for you to make a profit. Here are some ways that you can determine whether there is a market for your product or service:

• Talk to potential customers to understand the problems they are currently faced with.
• Conduct a thorough market analysis.
• Keep an eye on the latest industry news to make sure you are up-to-date.

2. Problems with cashflow

Cashflow is one of the most important things within any business. Growth that is unsustainable will make it hard to stay on the right side of profit, and a lack of sales will also lead to issues with cashflow. There needs to be an even balance between cash coming in and cash going out (of course the more coming in the better!). In the early stages of business, you may even want to enlist the help of a financial advisor in order to keep you on track.

3. Underestimating business admin

As a business owner you have to wear many different hats. You have to prioritise the product or service you are selling, but there are also lots of administrative tasks that need taking care of. These can often take a lot of time and effort, which is why having something like a virtual office package which handles some of this for you could really help. 

Customer service is essential in any business, but even more so when you are just starting out. It is important to build those relationships with potential customers, and keep on top of your leads. Let us take some of the pressure off by handling some of your administrative tasks for you.

4. Choosing the wrong business partner

Not all entrepreneurs start a business with someone else, but you may decide to launch a start-up with a business partner or co-founder. It is important that you choose the right person, as the wrong leadership team can cause your company to fail at the first hurdle. 

There are lots of different ways to find a business partner, and you may already have someone from your business network in mind. Another thing you could look at is opening a franchise business. This will give you access to an experienced team with proven success in a specific industry.

If you would like to know more about how our virtual office services can help with your start-up business, contact us on 01205 809 222.