Why Do Small Businesses Fail Within the First 5 Years?

Most people have come to think of their dream life as owning their own business and working for themselves. While it's not incredibly difficult to start a business, it's quite another thing to make it successful. In the UK, nearly 60% of small businesses fail in the first five years.

Where do these businesses go wrong? What could have they have done differently?

The truth is, there is no magic formula to guarantee success in the business world. Fortunately, there are things you can do to push the odds in your favour. Just as importantly there are pivotal mistakes you need to avoid.

Keep reading for the top reasons small businesses fail, and what you can do to avoid repeating their mistakes.

Poor Market Research

One of the main reasons small business ventures fall flat is due to inadequate market research. When entrepreneurs have a good idea, product, or service, they start dreaming big. Confidence is good, but too much of it can sabotage a business.

The business owner has so much faith in their plan that they don't take the time to look at the hard and fast numbers. They fail to look at the important details of the industry, such as:

• Local market saturation
• Start-up costs
• Cost of daily operations
• Typical prices of products/services
• Financial projections
• Customer profiles
• And more

Knowing the industry you're about to invest your future in is vital for your success. The worst thing you can do is assume you're going to be successful without doing your homework and knowing the facts.

Lack of Planning

Many small businesses fail because the owner didn't take the time to come up with a realistic and well-researched business plan. A business plan outlines everything about how the business will operate, taking market research into account. It includes:

• An executive summary
• A description of the company
• A list of products and services (including product pricing)
• A market analysis (from your market research)
• Your business strategy (how you're going to operate and become successful)
• Business organisation (the layout of your team, management, etc.)
• Finances (costs and financial projections)

A solid business plan serves as a roadmap to success. 

Inadequate Funding or Starting Too Big

Most entrepreneurs need to borrow money in order to start a business. They look at business loans, investors, and crowdfunding to get the financing they need to get started.

However, some small businesses fail because they don't get enough small business capital to be fully operational. They may not have a good enough credit score or are trying to bite off more than they can chew. Regardless, they won't be able to hire enough employees, buy the necessary equipment, or stock enough products to fill their store. 

Alternatively, some businesses have plenty of capital but start off too big. Their customer base can't grow fast enough to support their costs. 

Oversaturated Markets

Another common reason small business fail is that people try to tap into a market with too much business competition. In some cases, if the business focuses on a specific niche of the industry, they'll be okay. More often than not, however, jumping into an oversaturated market with a new business is a recipe for failure.

For example, if a small town already has a handful of popular commercial gyms and several smaller studios, starting your own fitness centre may not be a good idea. 

Lack of Business Experience 

Most people who venture off to start their own business lack the experience necessary to guarantee success. Just because you're good at your trade, it doesn't mean you can run a successful business in that industry. For example, you may be a fantastic chef, but it doesn't mean you know how to run a restaurant.

For new business owners, it may be wise to hire a mentor. Business mentors are vital for people looking to invest in business ownership. They can help entrepreneurs make good investment decisions and teach them how to maximise their revenue.

Poor Management

What about small business owners who know what they're doing? Why do those small businesses fail?

In most cases, it comes down to poor management skills, either from the business owner or the management he or she hires. Knowing how to market, sell, and increase brand awareness is paramount to business success. However, if you don't know how to manage the people working for you, your business will be dead in the water. 

How you manage your employees will dictate their motivation, performance, productivity, and work ethic. You need to give them a reason to help your company thrive.

Ineffective Marketing Strategies

All businesses need a marketing budget. Brand awareness is essential for generating leads and making sales. Most new business owners don't have experience or education in marketing. They simply don't know how to get the word out. 

Entrepreneurs must research effective marketing strategies. This includes creating a website and building an online presence. Here are some of the best digital marketing strategies to implement for new business owners:

• SEO and SEM marketing
• Content marketing
• Pay per click marketing
• Social media marketing
• Email marketing
• Influencer marketing
• Affiliate marketing

You can also look to more traditional methods of marketing, such as posting ads in the local newspaper, airing ads on the radio, or creating commercials for local television channels. 

The Top Dos and Don'ts

There are over 5.8 million small businesses in the UK. Competition is steep. If you want to survive, you have to do things right.

We've already talked about some of the major reasons why small businesses fail, but here's a brief overview of the basic dos and don'ts to you should adhere to.

Do:

• Conduct thorough market research
• Create a business plan
• Seek adequate funding and start within your means
• Seek a business mentor
• Learn how to market effectively
• Track your cash flow
• Learn how to manage and inspire the people under you
• Focus on customer experience and satisfaction

Don't:

• Start too big
• Rush the hiring process
• Do everything yourself
• Assume customers will come
• Skimp on your marketing budget
• Avoid digital marketing strategies
• Treat your employees poorly

Every small business venture is unique. However, these rules apply no matter what industry you're in.

Do You Want to Avoid the Mistakes the Make Small Businesses Fail?

Are you starting a small business?

Perhaps you're looking into buying properties for long-term investments. If so, you don't have to go on this journey alone, we can help. 

Becoming a successful entrepreneur isn't easy, small businesses fail every day. With the right guidance, however, you can greatly improve your odds. 

Visit https://www.thebpa.co/ or message myself, Kam Johal, here on LinkedIn to learn more about what we can do for you.