The stats for new business failures vary depending on the source. According to the Parliament of Australia, 56% of non-employing businesses operating in Australia in June 2010 were still operating in 2014. While this isn’t as extreme as the perception that half of all small businesses fail each year, the odds are still pretty frightening and it is generally agreed that a new business faces an uphill battle to even survive, let alone thrive.
So why is that? Ironically, most of the reasons for startup demise relate to shortcomings within the business itself and include everything from failure to plan and budget, to a lack of understanding regarding management and marketing. Here are 10 common reasons for small business failure..
1. Starting for the wrong reasons
Some people start their own business because they want to be their own boss, while others want to earn more, work less and spend more time with their families. None of these is a valid reason for starting a business. You will actually earn less and work harder and you will probably see even less of your loved ones.
If your business is to succeed, it has to be started for the right reasons. You must have a passion for what you are doing and a drive to bring your product or service to the market. Only total commitment to your business dream will see you through the hard times you’ll face and give you the motivation to overcome all obstacles between you and success.
2. Not understanding your market
Before you can market your product or service, you have to know who it is for. You must know everything about your potential customer, because if you don’t, you will fail to target them effectively.
Who are they? Where are they? How many are there? How often do they buy? Only by building an accurate profile of the market your business will serve can you expect to reach them, talk to them in their own language and establish your business top of mind with them.
3. Not being unique
Unique Value Proposition (UVP) is a marketing term for what sets your business apart. Unless your product or service is different from your competitors, either through its uniqueness or through the way your business operates, you will be competing with the rest of the bottom feeders for scraps.
The reason many new businesses fail to make an impact is because they don’t know what their UVP is or fail to communicate it to their potential customers. Find out what makes your business different and build your brand around it.
4. Not having a business plan
When you plan a new holiday, you investigate accommodation, local attractions, dining and entertainment. And when you’re starting a new business, you should plan in the same meticulous manner. Many new businesses fail because they have a poorly thought out business plan or, in some cases, no plan at all.
Creating a business plan forces you to think about every aspect of your business; your finances, competitors, marketing, management, goals and potential obstacles. It allows you to create a milestone chart to measure success, solve problems as they arise and keep your business firmly on target.
5. Mismanaging finances
Financial mismanagement is one of the main causes of new business failures. You may be a whiz in relation to whatever product or service you provide, but few entrepreneurs are also conversant with accounting, bookkeeping, cash flows, taxation and a myriad of other financial issues.
A business needs to keep meticulous records of money coming in and going out, not only to remain compliant, but also to be able to tell if the business is in the black or the red. So if you don’t have the necessary skills to manage your finances, outsource these tasks to others who do, because the success or failure of your business may depend on it.
6. Failing to advertise
Many new business owners have a ‘build it and they will come’ attitude to marketing, but this is a dangerous fallacy. If your customer base doesn’t know you exist, it doesn’t matter how unique your business is, it will fail.
While advertising on TV, radio and in newspapers used to be a costly business, today’s new startups have access to a variety of inexpensive online marketing tools such as Facebook, Twitter, LinkedIn and Adwords. So there is no excuse for not getting your business out there, even if it’s only through a well-designed website.
7. Failing to lead
As well as financial management, another skill many new business owners lack is leadership. Effective management skills are vital in a business with employees and bad management can result in confusion, conflict, low morale and reduced productivity.
If you don’t have good leadership and management skills, acquire them through training. Establish a hierarchy, initiate best practices and delegate rather than trying to do everything yourself, because a business is only ever as good as the person at the helm.
8. Expanding too fast
While the aim of every business should be to grow and prosper, expansion needs to happen at the right pace. Some businesses fail because they grow too fast and overextend themselves financially.
Business growth requires strategic planning which in the case of franchising involves many variables and even successful commercial franchises only open new locations after careful research into local demographics, spending trends and future development plans for an area and your expansion should be subject to the same attention to detail.
9. Failing to adapt
Never assume that what you have done in the past will always work in the future. Failing to anticipate or react to changes in the marketplace can spell disaster for a new business.
Survival depends on your ability to embrace new trends as they emerge. Nothing stands still. New technology appears every day and new markets emerge. You have to be prepared to adapt your business to change if you are to continue to grow and remain relevant.
10. Underestimating the competition
A final reason why a new business can falter is a failure to recognise the value of customer loyalty. If you don’t look after your customers, your competitors will and new ones can appear at any moment.
Retain and grow your customer base by offering them real value for money and great customer service and always keep one step ahead by assessing your competitors’ strengths and weaknesses and developing strategies to improve your own competitive advantage.
Is your new business in trouble?
If you’re reading this article because your startup is experiencing financial problems, Australian Debt Solvers can help. We’ve been helping businesses with insolvency issues for many years and our extensive experience can identify a customised solution for any kind of problem.
More information? To find out more, give us a call on 1300 023 782 or email email@example.com.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)
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