Why start-ups fail (and what you can do about it)

05/07/2017

Starting a business is never easy. Even with the best ideas and contacts in the world, it still takes a lot of careful management, planning and execution to get your new venture up and running and even more hard work to maintain it.

While the business concept needs to be viable and based on sound market research, there are a number of recurring factors we see in any start-up failure that need to be heeded and addressed.

Here, we look at three common issues that can lead to the premature end of a new start, and at the very least impact its long-term success.

1. Poor management

Whilst many wannabe entrepreneurs would love to run their own business, not everyone has what it takes to be successful. Lacking leadership skills in particular could lead your business into a great deal of difficulty.

The good news is that, for every skill you lack, there is an employee or outsourced company that could do the job for you.

Many business owners shy away from seeking help out of fear of looking daft or an unwillingness to delegate tasks. But the important thing to remember is that you can’t and don’t need to be an expert at everything – it’s OK to ask for help.

Identify where your weaknesses lie and recruit the right people to fill in these gaps. If your business isn’t in a position to take on employees you could benefit from outsourcing vital tasks to the experts instead.

Our blog post looks at the pros and cons of various recruitment strategies to help you find a solution that will meet your needs.

2. Restricted cash flow

One of the hardest aspects for new-starts to get to grips with is managing cash flow. While getting this right is vital for businesses at any stage of their development, it is particularly tough at the start as, typically, outgoings will exceed income as you try to establish your presence within your chosen market.

It’s not getting any easier either, with business costs and widespread late payment continuing to put pressure on cash flows.

To help you manage your cash flow, it’s important to keep a close eye on your income and expenditure through a cash flow forecast. Not only will this give you an indication of when you might experience a shortfall, it will also show you why and allow you to take the necessary steps to avoid it.

For instance, some funding facilities are especially geared towards helping businesses maintain a healthy cash flow and ensure access to working capital, so it could be worthwhile exploring your options in this regard.

It’s also important to regularly benchmark your suppliers as your business evolves to ensure you continue to get the best deals and keep expenditure as low as possible.

And with the threat of late payment especially dangerous for new companies, be sure to implement a solid credit management strategy that will ensure your business gets paid when it should. This procedure should cover all stages of the sales process, from before the order is placed to after payment is collected.

3. Access to finance

As touched on in the previous point, it’s important that businesses have access to tailored funding to support activity and keep cash flowing.

Whilst it’s true that a lack of trading history can mean that more traditional funding is harder for start-ups to secure, the market has evolved to offer plenty of options for fledgling businesses.

In recent years there has been a huge rise in specialist business lending through the likes of invoice finance, asset finance and crowdfunding.

These funding facilities allow businesses of all sizes to access money to achieve specific requirements, for instance to improve access to working capital or to purchase new assets without tying up cash flow.

And as funding is secured against business assets there is less requirement for a detailed trading history, making these options popular among start-ups.

With the funding landscape constantly changing, it’s increasingly important to research your options and keep an open mind to get the most appropriate funding for your business’s specific requirements.

Our free eBook on funding for start-ups explores some of the finance options available to new businesses and their benefits to help set your company up for a bright future.

To find out more about our services as an independent commercial finance broker, please get in touch today. Either request a call back from one of our funding experts, or call us on 0800 9774833 to speak to our team today about your requirements.