5 Reasons Why 95% of Businesses Fail Within Five Years

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5 Reasons Why 95% of Businesses Fail Within Five Years

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Small businesses play a central role in the economy of many countries. In the UK for instance, SMEs are the major source of job opportunities for the residents employing over 16 million people. In addition, SMEs contribute greatly to technological innovations as well as the creation of new products and services.

They contribute billions in revenue to the UK economy. According to the Center for Economics and Business Research and Hampshire Trust Bank, SMEs currently contribute over £200 billion to the British economy. Interestingly, the figure is projected to hit £241 billion by 2015.

Millions of new startups open their doors annually. Unfortunately, only a small percentage survives past five years of doing business. According to Forbes for example, 80 percent of new startups collapse just 18 months after opening. Are you planning to start or just launched your small business? You must be asking yourself why the high failure rate. Below are 5 reasons why 95 percent of businesses collapse within the first five years:

poor management
  • Poor management

Nearly all business reports cite poor management as the main contributor to the scary statistics. A good number of new startup owners lack a background in business. They, therefore, find it challenging to handle a number of aspects, including finance, human resource management, purchasing, production, and selling. As a small business owner, therefore, you should consider working closely with an expert.

This will help you avoid making erroneous decisions that can easily sink your new venture. The expert will also guide you through planning to implementation. 

insufficient operating capital
  • Insufficient operating capital

Many small businesses operate within constrained financial abilities. In fact, many startups open their doors with little knowledge on how much money their daily operations would require. Some either fail to manage their cash flow appropriately or set unrealistic revenue targets.

If you are planning to venture into entrepreneurship, consider ascertaining the cost of starting and staying in business.  This is important since not all new companies begin to generate profits within the first year. You should also consider cheap accounting packages of weaccountax in order to have access to real-time cash flow statements.

strategic planning
  • Strategic planning

Many successful businessmen would tell you that planning and hard work are essential for growth and expansion of a new startup. However, many small companies fail due to shortcomings in their plans.

Others don’t plan at all. If you fail to have a concrete strategy, you will most likely find yourself overwhelmed with daily business needs thereby losing focus on the big picture. In order to avoid this mistake, it’s fundamental that you have a comprehensive business plan. It will not only serve as a reference guide but a tool for sourcing additional capital for the business.

poor business location
  • Poor business location

Strategic location is vital to the success of a small business. On the contrary, a bad location can kill even the best-managed company. Many businesses collapse because they are situated in locations that don’t favor growth.

Before you can settle on a particular location for your new business, you need to look into a number of factors, such as accessibility by the target market, traffic, parking space, and safety. You also need to check the location of direct competitors.

Lack of business diversification

Many small business owners make the mistake of depending on a single source of revenue for the company. Your business will fail if the only source of profit cannot sustain operational needs. Diversification is the solution to this. Choose to have multiple sources of revenue for the venture.

Are you looking for expert advice on how to grow your small business? WeAccountax is right here for you. Our seasoned business experts will guide form the scratch. We will help you develop a strategic business plan and provide consulting, accounting, bookkeeping, and taxation services. Contact us now to join the list of our successful clients.

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