Why do some SMEs fail? What to do and what to avoid

Longevity and sustainability for a new business are difficult to master. Contrary to popular belief, 30% of new businesses fail within the first two years, according to the Small Business Association (SBA). The SBA goes on to state that 50% of businesses fail in the first 5 years, 66% in the first 10 years, and 75% in the first 15 years.

Despite these damning stats, however, UK business-people are grafting hard year-on-year, setting a new record last year for the number of businesses started. There is no magical formula to ensure your business succeeds, but by identifying the key reasons new SMEs fail, you can learn from their mistakes to make sure you don’t fall into the same traps.

Research

Experts suggest the principal reason new businesses fail is not knowing what they’re getting themselves into. Whatever you wish to do, you have to go into it fully committed, with great enthusiasm and having done plenty of homework. “In all honesty, you cannot do enough research and homework before you start”, says business mentor, David Mellor.

Ensuring that there is demand for your product or services is one thing, but what about your location? Who is your competition? What are you up against? Can your supply chain be trusted to deliver?

Naturally, your success will hinge on many variables so it’s important to have a backup plan for when things go wrong. Weak business continuity plans mean you’ll struggle if things don’t go to plan, leaving you short when you’re at your most vulnerable.

Money talks

Ultimately, any business project relies on what fuels it; money. Cash flow ranks consistently high on the reasons why businesses fail and is amongst the top areas of concern for owners. With poor cash flow, you might struggle to pay any liabilities and fall into debt before you’ve even got going.

Organic growth should be your target. Excessive investment can lead to synthetic business growth, meaning further investment begins to prop up your operation entirely. Taking your time to ensure natural growth, taking on staff and opening up new sites only when necessary can help you to ensure stability.

Market effectively

Linked heavily to research, companies which start without social media or online presence seem doomed to failure. Almost 90% of businesses say their marketing efforts have increased brand exposure and almost 50% of Internet users say they look to social media and online reviews to check a brand or product.

Consider the age of your target audience, too, as these statistics vary widely based on the age of the user. Even so, a strong online presence can help with recommendations, brand awareness and your business name.

Of course, if things do go wrong, what will you turn to? At Hinks Insurance, we can establish the specific needs of your small business whether you’re a new or existing company. We’ll then source a policy that works to protect you in almost every circumstance you may come up against. For more information, get in touch with our team on 01482 323424.