Newsletter
September 2022 Newsletter
Top Reasons Small Businesses Fail in the First Two Years
We have all seen small businesses come and go whether it be in our local community, or an online business we once purchased from. The sad reality is that not every small business start-up will survive the critical first years of trade. Despite the best of intentions, many businesses will succumb to the same pitfalls. Before we go into these, here are the statistics to detail the hardship that small businesses face in the current climate.
- 33% of small businesses don’t survive the first two years
- 50% make it to the five-year mark
- 33% make it past 10+ years*
In line with these alarming statistics, here are just some of the reasons we see small businesses fail early on:
Finances
Running out of money, or mis-managing finances, is the leading reason that we see small businesses fail. Investing one’s life savings into a new business is risky. While they say you must take risks to reap the rewards, not every small business will make it to the 10+ year mark due to lack of profitability. While many small businesses may start strong, it is essential to fund the next stage of business growth.
Failure to Plan
Short sightedness in start-ups is a recipe for disaster. A business plan is essential to see your business through the critical first years where you (as a small business owner) will be learning, adapting to the market, and wading through sometimes treacherous waters. A business plan is essential to safeguarding the movements you make in business and will also be critical should you choose to seek financial support, funding or investment.
A standard business plan will include:
- A clear description of the business
- Marketing initiatives
- Competitor analysis
- Current and future employee and management needs
- Opportunities and threats within the broader market
- Capital needs, including projected cash flow and various budgets
Overworking & Losing Drive
Small business owners often seek to be self-employed to be in control of their own professional and financial future. Entrepreneurs and small business owners often seek to make change within their industry and bring something new to their market. While those who endeavour to wear the risks of small business start-ups should be admired, they can be overwhelmed with responsibilities, working endlessly, and failing to switch off. For those who wish to start their own business they should consider the financial and personal pressures of small business ownership especially in those first few years. Putting plans in place from the beginning to create work-life balance is critical.
Ignoring Data
If you are struggling to pay suppliers, not taking a salary for yourself, losing clientele and staff, these are all signs that your business management plan needs to change. Financially your small business accountant can assist you in analysing your cash flow and provide you with a clear insight into your financial position. Staff can sense the stability in the business and will feel secure in knowing that you are running a professional business which can adapt and change to meet the needs of those working in the business.
If you are considering starting a small business, it’s important to be wary of the pitfalls and the statistics. Small business ownership isn’t easy; however, it can be very rewarding. With the right team of planning and accounting professionals in your corner, you can support your business goals and navigate those first few years.