Pitfalls of business failure

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When a new business is starting out, the focus should not be failure.  But it is very difficult not to address this potential risk.  To help avoid being a victim of failure there are several reasons why businesses fail within the first couple of years of trading and also tips to hopefully help avoid failure.

Statistics state that seven out of ten start up companies fail in the first two years and out of the remaining survivors only 51% will continue to be trading after five years.  Not to scare any start out companies as advise is given below on how to avoid this.

1. Business started for the wrong reasons

Many people start a business because they want to make more money or be able to be their own boss.  These are not substantial reasons for success.  You need the drive and determination to make your product/service a success.  As well as these attributes a positive attitude will get a business through the hard times.  It is worth remembering mistakes doesn't make a business a failure it makes it stronger by learning from its mistakes.

2. Poor management

This is reported as one of the main reasons for business failure.  As management of new businesses are most often the owners they lack any business or management knowledge.  Mostly learning as they go along about areas such as finance, purchasing, hiring and managing employees.

Constant management and studying of the needs of the business is vital to success.  All of its operations need to be in control and an area should not be disregarded, as this can lead to the first step to failure.

3. Insufficient Capital

Having insufficient funds is a fatal mistake for failure.  No matter have much planning is done in preparing a business plan, the estimated revenue may not happen or more materials are needed than expected eating very quick into an already tight budget.

It is very important to identify how much money your business will require and also have extra to plan for any uncertainties.  Enough funds are needed to pay for all costs involved until sales are established to be able to offset against these costs.

4. Location, Location, Location

Location is the key to success.  There are plenty of stories of a good business not surviving when it should be due to a poorly chosen location.

Factors to consider are:

·       Where are competitors based in the area.  Is there too much competition

·       Local incentive schemes in area for small start up businesses

·       Where are the customers?

·       Traffic, accessibility, parking

5. Lack of planning

It is essential for all businesses to have a business plan and to follow it constantly.  It needs to be realistic and based on accurate information and have well thought out projections for future years.  A set of forecasted financial statements are recommended for at least three years worth of business.

If funding is required, a lender will not release funds until a full business plan has been produced.

This is a guest post by from Business Recovery the business turnaround specialist

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