1. No market for the product or service.

Hands down! This is the main reason for business failure. If there is no (or little) market need for your product or service then your business venture will fail.

Closely related to this are:

Ideally you need to try and do as much market research on your business product or service before you make “the leap”. If you do have a small amount of customers (or potential customers) speak to them first or even consider speaking to an expert in your sector as many will be happy to give you their advice and will even sign a non-disclosure agreement if you are concerned about confidentiality.

2. Owner starts the business for the wrong reasons.

If you think that you will have more money and more time for yourself if you start your own business then think again. Whilst those outcomes may eventually happen they are unlikely to occur without years of hard work and “watching the pennies”.

The main reasons for starting your own business should include:

3. Running out of money

Virtually no new business generates cash during its first few months. In fact most new business ventures consume cash for several months so you must have enough funds to take you through 6 to 12 months without any income. This cash must be sufficient enough to be able to establish your business and cover your living costs.

New businesses are also likely to be hit with unforeseen costs so it is important to save up/ raise additional contingency funds purely for such costs. Having these “emergency funds” available not only helps deal with unforeseen issues quickly, they also help ensure you are not derailed from your plan due to lack of finance.

In summary, the amount of pressure you will be under growing your business “from scratch” will be huge and adding “money concerns” during this critical period is the last thing you should do.

4. Poor Planning

If you have no plan to follow that it’s highly likely that you will lose focus on your business direction. This could result in a “scatter-gun” approach with your products/ services and the customers you target. Ultimately you will end up spreading yourself too thin and putting yourself in a position where you are not able to offer the differentiation to the market – which was the whole reason for starting your own business.

Many people fear business planning either because they’ve not done it before or because they find the process of “thinking in ink” difficult. They also believe that business plans are long, complicated documents but this not necessarily the case – for example a LEAN STARTUP BUSINESS PLAN is addressed in just one page.

There are many tools and techniques to help you with your business planning and we’ll cover some of these in later articles.

5. Wrong Location

If your business requires footfall to generate income or employees to work in it, then it’s imperative that you fully research the location well before starting. Criteria to consider are:

Other reasons small businesses fail

There are many other reasons small businesses fail including:

However, I believe that if you address the five reasons I have highlighted then you will be in a much stronger position to decide whether to start your business and to be well prepared for the first few months on what will hopefully be a very rewarding journey.

Stepchange Business Growth are experts in ensuring you have the finances in place and empower you with the financial knowledge you need to get your new business venture up and running. Drop us a line to find out more.