It’s a sad fact, but the vast bulk of small businesses fail. In fact, it is thought that as many as four in five start-ups eventually go to the wall. So why do so many small businesses fail – and what can you do to ensure that you buck the trend and survive?
Have something unique to offer
There are plenty of ‘me-too’ businesses out there making a solid living. However, the ones that enter the stratosphere are those offering something unique – think of the early e-commerce companies, price comparison websites and social networks. If you want to write a success story, our small business advice is to start by identifying a niche in the market and finding an innovative way to fill it.
Write a realistic business plan
Having a great idea is the start, but it isn’t enough. It takes extensive planning to launch a business, including clear strategies for premises, personnel, marketing and regulatory compliance, as well as in-depth financial forecasts covering turnover, profit and loss, and cashflow. In particular, it’s vital to know whether your start-up capital will come from your savings or a loan, and to ensure you have the funds you need to tide you over until customers start paying.
Invest in marketing
Nobody is going to beat a path to your door when you’re an unknown start-up. You must invest significantly in marketing to get your name known, and it’s vital that every penny of your marketing budget is spent wisely to produce a significant return on investment.
Don’t overspend
Whilst it’s crucial to invest in growth, it’s also important to control your costs. Runaway expenditure can easily derail a business, and in your early days you will need to remember that you are a raw start-up rather than a multinational. Depending on your sector, it may make sense to trade from home rather than renting premises in the early days, and to have a basic placeholder website rather than a sophisticated multi-page site filled with bells and whistles.
Don’t borrow too little – or too much
Failing to obtain credit when it is needed can spell the end for a small company, and following the financial crash of 2008 banks have introduced increasingly stringent lending criteria. For this reason, start-ups and young businesses may wish to consider alternative lenders, who have different criteria and who may be able to offer rapid emergency loans, finance secured against existing assets, and invoice factoring and discounting, which allows businesses to borrow against the value of their outstanding invoices.
On the other hand, with interest rates at a record low it can be tempting to borrow more than you need. Over-commit yourself and your business could be in real trouble when interest rates begin to rise, which most experts predict will happen during 2016.
Keep a close eye on your cashflow
Our greatest small business advice is maintaining your cashflow – cash on hand to pay your bills and your people and buy new stock – is crucial. The best way to do so is to keep your expenditure down, whilst being careful not to take out loans that will require large monthly repayments.
Evolve along with your marketplace
Business and technology never stand still. Those companies who do soon find themselves going backwards. An economic recession can produce an enormous downturn in certain sectors, whilst evolving consumer tastes can make today’s flavour of the path a thing of the past. Online shopping has proved a huge threat to many retailers, whilst whole sectors – TV rental and video hire businesses, for example – have virtually disappeared. Make sure you roll with the punches and diversify at the right time.
Nothing is ever guaranteed in business – though the sad fact is that many small businesses are almost guaranteed to fail. Remember the small business advice above and you can help to ensure that yours is not among them.
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