Setting up a small business can be risky as there is no guarantee of success. New businesses usually make a loss in their first year, after which they usually see an increase. This enables them to grow and prosper into a bigger concern. However, we are all too aware that a small business failing within the first year is very common and there are reasons for this. Let’s take a look at some of the main reasons why small businesses fail in the first year of trading.
- Lack of Experience
Inexperience in a particular field does not bode well when you have set up a new business. The reason for this is because when you first begin there are certain areas of your business that may save time and money. If you are not aware of these you may end up investing too much time and money in areas of your business that may not require all this attention. Understanding and researching your competition is also vital and experience is what helps you to manage this. A lack of experience can also be detrimental to your business as your clients may feel that you do not have the expertise and knowledge needed and therefore lack faith in you and your organisation. If you have clients that lack faith, they may feel that they can only give you small bits of work which are not sustainable or worse still take their business elsewhere.
Your business requires revenue in order for it to succeed. The initial outlay that you put towards a business is an amount that you may never get back. So, with this in mind that if you make any losses, you still have to be able to continue to operate. Paying staff, taxes and government bodies are all aspects that you have to factor into your business model. These areas have to be a priority and can hinder you when you are trying to grow your business. If you started your business with poor funding or a lack of funds, you may find that you are always chasing your tail, which is stressful and can also cause a business to fail. Finally, regular invoice payments which are paid on time are important for the flow of your small business. If larger clients do not pay you within a quick time frame, this lead to a knock-on effect to your cash flow which puts further strain on your accounting book.
- Poor Management
Poor management is an aspect which can cause a business to fail. An example of this is if you see warning signs that your business is starting to show signs of failure, a good manager should react to this immediately as this could be the difference between a business succeeding or failing. If a manager is stuck in their ways or has a particular belief in what makes a successful company, this can also be a dangerous combination as businesses and markets can change regularly. It is often said that poor leadership at the top of an organisation often filters down to those working at the grassroots level. Owners corporation management services are on hand to be able to assist you with any management training and advice.
- No Planning
Most major banks that offer business loans insist on a strong business plan to be in place. For example, if you wish to start up a farming business, you will need to think about a farm business plan. This should highlight growth and projected growth. It should also have a section that offers a contingency plan in case of a scenario where there is a change in a business trend. It is also advisable that your plan has a 6-month forecast related to trading which also needs to highlight any investments that may be introduced to your small business.
Poor marketing from the offset will hinder your business before it is even open. You have to remember that in most cases your marketing literature which will have already been distributed is the first window into your company. Getting this aspect wrong will any kill word of mouth referrals and it will also impact you in such a way that you may not be able to recover from this. Examples of poor small business marketing are badly written literature with poor spelling and grammar, low budget printing, a lack of a small business website and worst of all is to simply have no marketing methods on place at all.
Another aspect related to marketing is not taking account of market trends and not listening to what you customers actually want from you. Market research is a vital prerequisite to any business. Any information or data gathered then needs to be assed and applied if you wish for your business to succeed.
The location of your business can also be a factor which can make your business fail. An example of this is if you are opening up a children’s play centre and you have fantastic premises in a rural area, this will hinder you as you have not thought about your customer base as a play centre designed for children needs to be located in an area that has a high concentration of children and families and it is not too far to travel to.
The above information highlights and shows you some of the most popular pitfalls that are encountered when a small business is first opened. Bearing these in mind may help you to succeed in your small business and not fail like many do in the first year. It may also be worth visiting your business banking centre for some advice before you proceed with opening up your own business.