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Reasons Why New Businesses Fail

33% of start up businesses do not make it past the first 6 months.
50% fail within 2 years
75% fail within the first 3 years of existence.
(Source Dun & Bradstreet, INC Magazine)

To help you try and avoid this we have listed some of the main stumbling blocks to consider in the early stages. 

1. Lack of Business Plan

So many entrepreneurs start their business plan without a plan or knowing where they are going.
It’s not enough to just expect your business to thrive it takes a lot of hard work, planning and strategy to succeed.
Developing a business plan will identify what you want your business to achieve within certain time frames (where you want to go) and the tactics that you will employ to get there. 

2. Lack of Funding

One of the most common reason for failure is due to running out of money. Take a look at our tips for raising capital and top tips for starting up pages.
Before beginning trading in any business, you will need money to cover the start-up costs as well as sustainability cash for the first few months, which will most likely be the hardest.
A well thought through Business Plan will let you know how much money you require for start-up and operational expenditures until you start to develop a sustainable cash flow.

3. Missing goals and objectives

The business plan you develop is not just for the getting your hands on start-up cash. It’s important to keep referring to it and amending it as a fluid document that has goals and SMART objectives in it. That way you can see if you are on track or not. It is easier to stay on top of this by setting and reviewing these targets by quarter, so anything that isn’t going to plan is flagged up as an issue while there is plenty of time to do something about it.

Here are a few examples of what to set at the beginning:

  • Revenue targets
  • Profit targets
  • New customer numbers
  • Marketing messages and awareness
  • Operational achievements

4. Ignoring Cash Flow

As obvious as it sounds, if you continue to spend more money than your business is making, there won’t be a business for much longer.  

Cash flow = money that you take in each month - expenditures.

A lot of businesses continue to operate successfully with a negative cash flow for the first several months of existence. To do this though revenue costs will exceed expenditure to the business is not losing anything either.

5. Not understanding the industry and target customer

A lot of entrepreneurs have the ideas and run with them without looking into the industry trends, things that should be considered beforehand are:

  • Is it growing or declining?
  • What are the opportunities and threats?
  • Where can you best position your business for it to succeed

Your competition will try and keep hold of their client base which you are trying to take from them. You need to be clear on what makes you different and stand out from them.

Another key to success is ensuring you identify and understand your target customers; ask questions such as what are the buyer demographics and psychographics? How do they purchase? What and when do they purchase?  What motivates them to make the purchasing decision and where from?

If you do not understand your target audience, you cannot expect to communicate with them effectively.