It’s a sobering statistic – only 44% of UK businesses will survive beyond their first 5 years. (source: https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemography/2016/pdf).
However, knowing a few common weaknesses could prevent your from seeing your business crash land before its properly taken to the skies. Here are the top 6 reasons that many businesses don’t make it:
1) No business plan
It might seem obvious, but if your business is to survive for just 1 year (let alone 5), then you need a plan. Too many people avoid clearly writing out the goals they hope to achieve within 12 months. How will you measure success if you don’t know exactly what success looks like for your company? Part of your plan must also include a step-by-step strategy for when, where, and how you will accomplish your goals.
2) Ignoring the market
Entrepreneurs tend to be dynamic people, but sometimes this confidence can overflow into arrogance about what your customers actually want. Don’t be too proud to listen to client feedback. Collect market research, study performance data, solicit opinions, conduct customer surveys – seek anything that might reveal what you’re doing well, and also where you could improve. Sometimes the customer really does know best!
3) Dependence on a few clients
So, you’ve just landed a few large accounts – great news! However, many small businesses become slaves for one or two larger clients, either due to laziness, lack of confidence, or lack of capacity, etc. Yet those customers might leave in the future or possibly go bankrupt (big businesses also fail, remember). Now is not the time to stop marketing your company to the world or searching for even more clients. Securing a broad and varied customer base is key to longevity.
4) Cash flow woes
A full order book is wonderful, but it won’t pay the bills. You need liquidity, which requires devising a plan to secure payments owed from clients – prompt and regular payments, too. Don’t make the common error of allowing cash flow to dwindle because of too many unpaid invoices sitting on the books.
5) Sweating the small stuff
Your business might be your baby, but effective leadership doesn’t mean trying to do every little thing yourself. Minor tasks should be delegated to others, leaving you free to devote time/energy where it matters most (i.e., not reloading paper in the printer!). Try to build up a team of employees, people who you can trust, so you don’t get distracted or exhausted by the trivial daily details of running the company.
6) Lack of proper insurance
The dangers of not securing business insurance involve lost income, lower profits, inability to pay compensation claims, inability to fix damaged products, and the inability to bounce back from business interruptions. Ignoring this important area is frequently catastrophic. All it takes is one fire, flood, or employee/customer who suffers an injury on your property. If your business aims to last, it has to get through the hard times and recover from those unforeseen accidents and financial setbacks. This means investing in the vital protection of a business insurance package.
Despite all the doom and gloom, remember that some small businesses also do manage to succeed. Now you know the most frequent pitfalls to avoid, perhaps your company will survive and thrive beyond the next 5 years, becoming the next great UK success story. Good luck!