3 Reasons Many New Businesses Fail

Posted in Small Business on Sep 13, 2018

1. No Real Business Plan

The business plan, whilst often overlooked, provides the blue prints for the growth and development of a new business, all the way from the initial concept to the intricacies of the figures.

Many prospective business owners stop all forms of forward planning at the ideas stage and then jump right into things. Sometimes this works, but more often than not it doesn't.

A business plan will help determine whether an idea is viable in the first place and, if it is, provide realistic and achievable 'goals' for the development of that business, preventing any nasty surprises or missteps along the way.

To get the maximum benefit out of a business plan it needs to be sufficiently detailed and focus on all of the issues likely to impact the business, beyond the obvious although clearly important areas such as profit and expenses etc.

2. Lack of Investment

Unfortunately, the statement "it takes money to make money" can be frustratingly accurate. And many would-be business owners fall at this first hurdle as they fail to plan for and obtain the money needed to:

A) Establish a competitive infrastructure: The specifics will differ depending on the nature of the business, however using web hosting as an example, investing in infrastructure could mean purchasing a high specification dedicated server.

B) Allow the business to run at full capacity day-to-day. This is critical as much of the early work invested in a new business is unlikely to be profitable but is a vital part of spreading the word and creating a customer base. Think of it like this; if you do a job half as well as you're capable of, in an effort to save money, do you think your reputation will benefit?

3. Growing too fast too soon

This problem can arise from the highs of initial success which can convince inexperienced business owners of their mastery of a new industry. In certain circumstances this can lead to a premature adoption of the mentality "if I can do that here, imagine what I could do If I......".

In the long term, and with proper planning, this can be a healthy way to approach the expansion of your business, however if its not properly planned out and the timing is off you can do much more harm then good.

There are a myriad of problems associated with expanding a business when its not ready, including:

A) Larger, or more 'upmarket' premises means higher rents, or purchase prices, and business rates.

B) Larger premises require extra investment into infrastructure to maximise the efficiency of the space.

C) New premises, despite being larger or more 'upmarket', might not be as geographically suitable which can ultimately lead to a downturn in business. For example, a large site located outside of town will receive much less foot traffic than a smaller space located in the town centre.