When you are launching a business, it is expected that you will learn on the job, particularly if you’re new to it. Part of this means understanding what it takes to run an enterprise effectively and navigate the commonly associated challenges.
However, with only 40% of SMEs making it past the first three years, the odds are stacked against you. So, it is essential to do what you can to ensure your enterprise is one of those that survive.
One way to boost your chances is to learn from the lessons of those that have tried and failed before you. By understanding the significant reasons that businesses fail, you will be able to identify the risks posed to your own enterprise and prepare for the obstacles that may come your way.
In this blog, we have listed the most common reasons that companies do not survive and what you can do to avoid it happening to you.
- Poor business model
- Inadequate funding
- Poor cashflow and other money issues
- Failure to engage audiences
- Management or staff issues
Poor business model
When it comes to starting a company, you need to have strong foundations to enable success. This boils down to your business model.
Your business model underpins everything about your enterprise: what you do, why you do it and how. Essentially, it’s the idea that you believe makes your company valuable. It is therefore essential that your model is built on a great premise that has demand in the market, with sound logistics and financials to make it work. These are the building blocks for success.
If you have a weak model – such as an idea that not enough people are interested in, insufficient production processes that don’t meet demand or marketing techniques that don’t convert to sales – you will likely struggle.
To avoid this happening, take time crafting your model, utilising market data, market research and competitor analysis, to be sure that you have a sound idea and strategy. Even if things don’t go accordingly to plan, a good idea will always generate sales and attract demand – so getting it right is essential.
Inadequate funding
Setting up and running a business comes at a cost, so you need to make sure you have the funds in place to do so. This includes covering expenses like materials, equipment, staff salaries, energy bills, supplies, external services and so on.
If you do not have adequate funding in the initial stages, it is likely you will not be able to purchase everything you need, which could lead to production issues, reduced quality and inability to meet demand. If you don’t have appropriate funding moving forward, this could prevent you from expanding or being able to operate efficiently.
As such, it is vital to get the best funding you can for your business to cover expenses and enable you to set up correctly. Take stock of the different options available to you and compare to find one that fits your requirements. It is also beneficial to try to get funding from one source: taking out multiple loan applications may impact the chance of you succeeding with any as your credit score is impacted.
By understanding the different options and finding one that offers appropriate funds, you will be able to set up your company without placing strain on your finances. You will also be able to start on a sound financial base, which should allow you to operate smoothly moving forward.
Poor cashflow and other money issues
Every enterprise has regular expenses, such as bills, supply orders, salaries and so forth. Having an adequate level of cashflow is needed to allow you to meet these financial commitments consistently.
However, if costs increase too much or you experience a fall in revenue – as well as other factors like clients not paying you owed money – you could experience cashflow issues. This could lead to you being unable to pay your required expenses, in turn leading to reduced productivity and even debt.
If this is a problem in your operations, it is therefore essential to boost working capital. Fortunately, there are many cashflow management solutions out there designed to help, including invoice finance, trade finance and stock finance. By utilising these options, you will be able to release capital in your company before they spiral out of control and lead to harsher obstacles.
If your problem is beyond cash blockages, there are still plenty of solutions out there which might address your needs and get your enterprise back on track. The key is finding the ideal one for you, accessing appropriate advice and acting quickly before the effects become irreversible.
Failure to engage audiences
Every company needs customers. If you don’t have enough customers, you will likely have few sales, leading to reduced revenue and potential closure.
If you are struggling to get customers, it could indicate you are not engaging the right audiences with your products and services. There could be many factors for this: pursuit of the wrong target market, overshadowing by competitors, lack of brand awareness, ineffective marketing, bad reputation, or prices being too high are just a few. Undertaking a business autopsy should help you to identify the reasons.
Research your competitors to find out what is working for them and what you may be missing out on. You should also audit your customer-facing channels, such as through your sales team, review sites or just by speaking to customers, to find out what their opinion of you is and what you could do to improve. You may implement new marketing channels, such as advertisements, PR, social media, email and so on to help you to effectively capture the right people and introduce them to you.
By learning how to engage your customer base, you will be able to boost sales and profit, which spells out long-term success.
Management or staff issues
Another common reason for business failure is that the wrong people are at the helm of the ship. It is vital to have management that has the right vision for your enterprise and can run it effectively, combined with motivated and hard-working staff, all of whom share the same values. If a part of this equation is missing, it could lead to reduced quality, low productivity, ineffective operations and a bad reputation as a company. Poor management may also lead to logistical and financial issues as the business is chartered in the wrong directions.
You should ensure that you hire suitable candidates for your company that will do their designated jobs to the best of their ability. It is also essential that communication is open, and every member of the team is bought into the visions, values and strategies that underpin all your operations.
If you do run into trouble with your workforce, it is essential to root out the cause as quickly as possible and take appropriate action to bring harmony back to the business. By doing so, you will be able to keep things moving in the right direction with safe hands to guide it, as well as benefit from a happier working environment and satisfied employees. In turn, this will lead to better quality for your customers and aid in future recruitment efforts.
Get advice
Being able to run your company effectively is instrumental in preventing you from being one of the many business casualties in the UK each year. However, it can be challenging to know exactly what to do to ensure your survival.
The tips above should help you to pinpoint the areas of concern to look out for and address in your company. Equally as important is getting suitable guidance when a problem does arise so that you access the support you need to turn things around.
Our team of advisors have experience of working with many businesses to solve a variety of different issues. We can point in the direction of a solution that fits you, taking into account your unique requirements. As a result, you will be able to place yourself on the best footing for longevity.