4 reasons small businesses fail – and how to make sure yours succeeds

Predicting business success is an inexact science.

There are many different theories, and it’s often difficult to get to the root of why a business does or doesn’t work. With this in mind, we’ve scoured the research and pinpointed four areas you can address to give your growing business the best chance for success:

  • Cash flow
  • Adaptability
  • Marketing
  • Professional advice

Read on to find out how and why these issues affect young businesses, and how you can protect your company.

Lack of cash flow

The number one reason startups and SMEs fail is because they underestimate the cash flow needed in order to remain operational. This is also an issue of business capital. You either need substantial investment before you begin, or a steady flow of cash into the business with manageable outlays.

On paper it may appear as though you have great financial projections, but reality can be very different. Your cash flow can be affected by variables you don’t expect, such as:

  • Do your clients pay on time?
  • Do your suppliers require upfront payment?
  • Have you experienced overwhelming product returns or requests for discounted services?

Do you have a substantial ‘buffer’ of cash to cover unexpected costs or lack of income?

How to protect your business

In order to protect yourself against cash flow being the final nail in your business coffin, make sure you are extremely cautious with your spending and saving.

When you first start up, you should save as much of your income as possible to build up a strong cash buffer in the bank. Also keep in mind all outgoings when considering making an investment, such as hiring a new team member or moving to a new office.

Refusal or inability to adapt to market changes

In today’s global and fast-paced marketplace, agile businesses will be the ones to survive and thrive. With the time and investment it takes to start and launch a business, it’s easy to feel you’ve done the hard work. But this is only the beginning.

Business author Alan Deutschman famously popularised the phrase “Change or Die” in his book of this title. Here he suggests that although humans have the ability to change, we rarely do – even when we could avoid tragic or ominous outcomes simply by changing our frame of mind.

As a business owner, it’s natural you should feel loyal to your offering and way of doing business. But the fact is –your business is only as good as customers think it is. If you don’t continually adapt to the changing world, your company will not survive.

How to protect your business

It’s not enough to research the competition and come up with a unique offering. Your business needs to constantly keep pace with new technology and meet your customers’ needs.

Subscribe to a trend-watching newsletter and explore how companies in other industries are innovating. See what you can learn and brainstorm how you might apply this in your company or with your customers.

As Deutschman suggests, anyone can achieve lasting, positive change with the right mindset. Make sure you blend this with your overall business approach.

Not enough marketing investment or planning

Marketing investment is essential, but it must be done wisely. Many entrepreneurs have a great idea, do the hard work of establishing and developing a business, and then expect customers to find them.

This is very unlikely to succeed.

On the flip side, other entrepreneurs throw money into marketing with the expectation that the more they spend, the better the results. It’s easy to blow through a huge pile of money only to achieve substandard results, especially with online advertising so accessible.

How to protect your business

If you don’t have a background in marketing, talk to someone who does to see what’s working for your type of business.

Develop a brand strategy focused on your unique offering and perform marketplace and competitor analysis to develop your positioning. Invest in the methods that are showing the best ROI for your industry and gather all the data you can about what’s working for competitors.

Digital is more important than ever, and one advantage is it allows you to more accurately track and measure your marketing spend. But approach online advertising cautiously, with a test-and-learn approach.

Not seeking professional advice

Although many business owners feel they can go it alone, the fact is that using a professional advisor is the most important commonality among successful young businesses.

Companies with less than 10 employees that do not have a professional advisor have a greater chance of failure than those that do. This is probably due to experience – starting and running your own business comes with its own challenges and hurdles. Unless you have successfully navigated these before, you will be resorting to trial and error each time.

How to protect your business

Enlisting the services of a professional business advisor may seem like an unnecessary expense in the early days.

But this is money well spent.

You will benefit from the expertise of someone who has previously experienced the triumphs and pitfalls of small business ownership.

Although not without risk, owning and running a small business is fulfilling and rewarding. Address these four areas today to ensure your business has the best chance of success.

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