In today’s economy it can be unnerving to think about setting up a business and going it alone, but being aware of why a business can fail, can help to ensure that you have every contingency in place to reduce the chance of this happening to your company.
Below are some of the reasons why businesses fail. Knowing that these failures are possible means that you can have every chance of success when starting your business.
Main reasons for business failure:
- Lack of detail in your business plan
- A business plan is essential when starting a business, not only for any loans you require but also providing you with structure and guidance to stay on track when you are starting out. A lack of detail, although may get past the banks or investors, will eventually fail you when you hit a wall where you should have planned better.
- Lack of appropriate funding
- Funding is one of the main reasons many businesses fail, and with banks’ lending less and less, it is fair to see why. You can start your business on minimal funding but you must think about every detail of costs and this should happen during your business plan stage. For example, think about details, how much printing will you expect to do, stamps for letters, office space if you have any, equipment etc. the more detail you plan for, the less likely you are to fail. And it is always better to over budget then under budget.
- Trying to do too much too soon (or trying to expand too quickly)
- This is a difficult area, as entrepreneurs or business start-ups there is the excitement of wanting to get all your products or services out at once and expand and grow, so you can make your millions, right? Wrong! Think about your market and what is missing, think about one aspect you want to deliver, deliver that, and do it well. Once you are doing well in this area, whether that is profit or turnover, think about the next phase. Updating your business plan with phases is also a good idea, so you have a rough idea of when each phase can be developed. Allowing you to be successful in stages.
- Too much focus on short-term profits
- Think about your long term goals. Short term profit is essential for growth and success; however this doesn’t want to be at the detriment to your customer base. Offering a poor service or a budget product may give you quick wins in terms of profit, but your customers won’t stay or promote your company and ultimately your business will fail.
- Having the wrong location
- We have heard it all before, there is even a TV show named after the saying… ‘Location, Location, Location!’ Location is fundamentally for some industries the most important thing. Having a retail outlet in the middle of nowhere is a surefire sign that your business won’t succeed. You need footfall. The same can be said for office space. Having a trendy office at Silicon Roundabout may sound exciting and look flashy, but if your start-up budget won’t allow it, why do it? Start off somewhere else, whether that is out of a major city to reduce costs or on the outskirts of a city. There are also other options such as rent-a-desk schemes or office share, all good, viable options when starting out. Save that flash and sleek office till the business is booming!
- Lack of understanding the sector or competitors
- This is also one of the biggest area’s people get wrong. It is so important to look at what your competitors are doing; they are your guide to the industry. If you can speak to those in your sector, but perhaps not direct competitors they may help offer advice and insight. Research your sector, then once you are done research again and then just to make sure, research again. The more knowledge and insight you have the better prepared you will be.
- Dedication
- Starting a business is not a 9-5 job and a business should never be started because you don’t want to simply ‘not work for anyone else’ or ‘I want to be my own boss’. These are factors in a lot of start-ups, but you need to be prepared to put in the hours, and you have to be prepared that you may have to make sacrifices in other aspects of your life, be it family, friends or hobbies. If you think starting your own business is easier than working for someone else, remember this point.
Researching your market, who is out there in the current marketplace, and estimating the cost of setting up your business are key factors in ensuring its success.
