Opinions differ greatly over the exact survival rate of new businesses in the UK, but without doubt the failure rate remains depressingly high. Some claim that more than half of small businesses fail in their first year, while 90% don’t last two years. So what are the key reasons why they don’t make it and why do more established businesses go under? In no particular order…
The ‘build it and they will come’ approach to starting up isn’t advised. You should only start up if you have firm evidence of demand. Start-ups that don’t have products people want to buy usually come to an end when the owner’s savings run out.
One of the best ways to prove the viability of your business model is to put together a sound business plan. There are no guarantees, but if your numbers are realistic and your idea can be shown to work on paper, at least you’re not dealing with wholly unrealistic assumptions. Fail to plan and you plan to fail.
If your new business is ‘under-capitalised’ from the start and your sales fail to live up to expectations, you’ll soon run out of money, which is likely to spell the end for your business (and don’t expect the bank to help). What if you don’t make any sales for months – will your business survive?
Just because you want to start a business doesn’t mean you’ll be good at it. Knowledge and skill can be gained, but if you lack drive, commitment, won’t make sacrifices and you’re lazy, running a business won’t be for you. That said, hard work and determination alone is not enough to succeed in business.
If you’ve never ran a business previously, there will be many times when you won’t know what to do. Fortunately, others can help. Access as much free reliable advice as you can. The bad news is, there’s a lot of bad advice out there, too, so beware.
Performance in your first year might exceed your expectations, but investing heavily to try to grow at the same or even a higher rate can leave your business overstretched and with bills it can’t afford to pay.
Your initial ideas might not bring the results needed to keep your business afloat, so you must remain agile enough to make changes where necessary until things begin to work. In business it pays to have other options up your sleeve.
These are important skills that can enable you to produce a business plan and spot when a potentially serious cashflow problem is heading your way. Failure to accurate forecast sales can lead you to make terrible decisions based on false assumptions.
Successful businesses get their prices right. Go too low and you won’t make as much profit as you could. Furthermore, you could struggle to increase your prices. Go too high and you’ll put off potential customers. When setting prices you’ve got to know your market.
These create an unnecessary burden from the off, by making it much tougher to turn a profit. It’s reckless to waste money on things your business doesn’t need. You must minimise your start-up costs and remain lean and efficient as your business develops.
In your experience, why do so many new businesses fail and what survival advice can you offer to start-ups?
There's more great advice available on the Donut business survival guide.