Why Most Small Businesses Fail in the First Twelve Months
Crikey! A Sad But True Tale
Many people have a dream of starting their own small business so that they can be in control of their own future. The problem is that most small businesses fail very early on. Trying to understand why most small businesses fail in the first twelve months should make it much easier to build a successful business. This guide will look at the common reasons businesses fail.
Key Reasons why Businesses Fail:
- Not Being Able to Differentiate and Compete
- Bad Business Idea
- Cash Flow Problems
- Trying to expand too quickly
- Unclear business plan
1. Not Being Able to Differentiate and Compete
It’s very easy to spot a great business idea that someone else is already doing and then try to emulate it. You might assume that because someone else is managing to make money from it that you can too. The problem is that unless you can differentiate your business you will struggle to compete with the competition. Most customers would prefer to buy from an established and trustworthy business, so unless you can come up with a reason why they should buy from you then this can be difficult.
2. Bad Business Idea
Just because you see someone else making money in a particular way, it doesn’t necessarily mean that you will be able to make money in the same way. Choosing a crowded market will make competing very difficult. Many people starting a business for the first time will choose to sell something high value that there are lots of customers for. The problem with this is that while there are lots of customers, there are already plenty of businesses serving them. It is much better to choose a niche area which isn’t being served completely. Businesses really need to offer something different to the market.
3. Cash flow
Even profitable businesses can fail as a result of poor cashflow. Cash flow is the flow of cash in and out of the business. As a new business you might find it difficult to manage your cashflow and maintain enough cash to pay wages and bills. Creditors won’t wait to be paid forever and could force your business into liquidation if you are unable to pay your bills.
Ways to Resolve Cash flow problems:
- Securing enough funding before starting the business
- Growing the Business slowly
- Consider using invoice finance or debt factoring to get cash from invoices faster
4. Trying to Expand too Quickly
Businesses need to grow slowly and in a sustainable fashion. If a business grows too quickly then this can cause all sorts of problems. This includes problems with the cashflow. Any new business needs to have plenty of funding in place to support their business while it establishes itself. It will need life support until it can stand on its own two feet and start providing for you.
5. Not having a Clear Business Plan
Most people will only bother creating a business plan if they need to apply for funding from a bank. However, a clear, concise business plan is essential for every business even if you are using your own money. A business plan provides clear aims and objectives. It also helps to get everything down on paper so that you can stay focused and also look at how viable the business idea will be. A business plan and forecast is also a good way to look back on your first year and see whether you met or exceeded your expectations.
The most common reason businesses fail during the first 12 months are completely avoidable. As long as you do your homework, create a business plan and manage your cashflow efficiently then you should be able to build a stable business which can provide for your future.
Daily Blog World doesn’t like hearing about local businesses closing. Please do your home work and make sure you know what you are getting into.
If you need help checkout: http://www.business.gov.au/Pages/default.aspx
Flying Solo is also a good resource: http://www.flyingsolo.com.au/