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!
How To Overcome Business Failure
As stated above, there are many reasons why small businesses fail, but that doesn’t mean that you can’t put steps in place to prevent failure (or at least lessen its impact) in the first place. We’ll now take a look at positive things we recommend you do, to strengthen your position in the future.
Carry Out Regular SWOT Analyses
A SWOT (strengths, weaknesses, opportunities, and threats) analysis is an examination of the internal and external areas of your business. It aims to identify parts of the business that are working, and those which are not, providing you with action points to work on.
- Strengths are great internal factors within the company. Things are working well in this area. Therefore, develop this part of your business.
- Weaknesses are damaging internal factors. Something is not working properly. Look at how to make immediate changes, work toward something new, or stop what you’re doing entirely in this respect.
- Opportunities come from external factors and represent good prospects for the future. Capitalise on these ventures and act to make the most of them.
- Threats are adverse external factors that pose potential damage to your company. Determine which areas of your business are affected by this problem, and set goals to make improvements that will minimise the potential for harm.
Always Be Customer-Focused
Loyal customers will do anything for their favourite brands, so you should make use of their ingenuity, and willingness to help. Involve them in your business strategies, marketing campaign planning, and new product development. Share their case studies, consider their points of view, absorb their feedback (both good and bad), and make them feel important. By doing so, and showing interest in their ideas, you can create a brand that meets their needs, and one that will keep them coming back for more.
Invest In Someone Who Knows Better
Find a business mentor or advisor to guide your business strategies and working practices. Utilise their expertise and personal experiences to help your business grow. They can share advice, give you feedback and possibly even connect you to new clients and contacts. In fact, a survey carried out by Sage found that 93% of medium-sized businesses credited their mentors for helping them succeed, and therefore, you really do have nothing to lose.
Manage Your Cash Flow Efficiently
You need to have money coming in, otherwise, you won’t be able to pay your staff, pay the rent or even pay for the materials and stock that helps you make money in the first place. To help manage your cash flow, have a cash flow forecast so you know the amount of money that is coming in and will be going out. Use this forecast to project sales and expenditures, and how much you’ll have left in your account.
Speak To The Insurance Octopus
Whether you need help finding the right business insurance policy, or need to update your current one with additions, we can talk you through our range of available options, and provide you with a quote that you can depend on. Please contact us today for more information on just what we can do for you.