Nobody wants their business to fail. But according to information that can be found online, 20% of new businesses fail within the first year, 30% of businesses fail within the second year, and around 50% of businesses fail within their fifth year.
Should this put you off from starting your own business? No, of course not as many businesses go on to thrive and last for years so you could be one of the many fortunate people who succeed in business.
Still, it’s worth understanding why businesses fail as this will give you the incentive to take the necessary steps to protect your business from closure.
So with that in mind, let’s look at some of the reasons a business may fail.
1. Not Having A Business Plan
A good plan will help you to structure, manage, and grow your business in the first year and beyond. Without a plan, you will have nothing to aim for and as such, you could mismanage your business and cause it to fail.
So, rather than flying by the seat of your pants and running a business without any clear aims or objectives, put a plan in place if you haven’t done so already. There are tips here on writing a business plan so follow the advice within to get started.
2. A Lack Of Funds
If your business runs out of money, you will struggle to continue and you might have to close your business as a consequence.
There are all kinds of reasons why businesses lose money. These include:
- Bad accounting
- Setting products at too low a price
- A lack of sales
- Lawsuits from customers or employees
It is possible to overcome these issues so you should take the necessary steps to protect your business finances. For example, you should:
- Use accounting software or use the services of an accountant to manage your finances
- Follow best practices for pricing your product
- Use new and traditional ways to market your product
- Consult with a small business insurance broker to learn more about your insurance options
3. Not Taking The Competition Seriously
Unless your business is completely unique, there will be businesses like yours trying to reach the same demographic. If you don’t take steps to outrival the competition, your business could fail if you start to lose customers as a consequence.
To stay ahead of the competition, you should:
- Sell better products
- Differentiate your business from your competitors
- Step up your marketing
- Look after your existing customers
- Learn from your competitors’ mistakes
It’s also important to carry out a competitor analysis as this way, you will learn what your rivals are doing and have more idea on the steps you need to take to beat them.
There are things you can try if your business isn’t growing, including the linked tips and the suggestions we have given in this post, so if you are worried about business failure, you might be able to turn things around before you need to think about shutting your business down.
Of course, if your business is growing, you will have less need to worry about failure. Still, you shouldn’t become complacent and ignore our suggestions as you should still take steps to protect your business from anything that could one day cause it to fail.