Lucy - BQ Magazine EditorIt’s always best to go into anything with a positive sense of optimism, and that’s especially true when starting your own business. Running your own operation can be extremely challenging, and unless you truly believe that good things will come from it, then you’re unlikely to have the capacity to dig deep and really make things happen.
Still, with that said, it’s also important to be realistic. 20% of businesses fail within the first two years, and nearly 50% have closed their doors by the five-year mark.
The good news is that most businesses fail for the same old reasons, which means you can learn from their mistakes. Below, we’ll take a look at the most common causes of business failure, and what you can do to avoid them.
Insufficient Market Understanding
Some businesses were always destined to fail. Why? Because the market didn’t need them. You could have a fantastic idea for a business, but if there are a bunch of businesses already doing the same thing, then it’ll take something pretty special to break through.
You can avoid this by taking the time to conduct thorough market research before you get too far along the business development process. Already opened? Market research can help tell you whether you need to pivot your operations to something related but different.
Cash Flow Problems
Even businesses that appear to be going well can run into problems if they have cash flow issues. When that happens, there’s more money going out than coming in, and at that point, things can quickly begin to go wrong. It’s important to take a proactive approach to your cash flow by ensuring you get paid as quickly as possible; if needed, include an early-payment discount in your invoices to incentivize your customers to pay promptly.
It’s also important to use accounting software, which will allow you to keep a close eye on the overall health of your business finances. It’s much easier to rectify cash flow problems at the earliest sign of trouble, rather than waiting until they’ve caused a lot of damage.
Failing to Nurture Customer Relationships
Time and time again, you’ll see businesses going after new customers. Yet, while it can be good to add to your customer numbers, it’s worth keeping in mind that most successful businesses are built on repeat business, not one-time business.
Your business will be in a much healthier position if you can nurture your relationship with your existing customers. Ultimately, it’s about having a solid foundation of repeat customers, with a little sprinkle of new customers on top.
Growing Too Quickly
A business might close its doors if it grows too slowly. But that doesn’t mean that growth is automatically a good thing. Businesses can quickly run into trouble if they grow too much, too fast.
You’ll need to ensure that you have the infrastructure in place to manage your business growth — and increasing customer demand — before actually doing so. In most cases, it’s best to take a slow and steady approach to business growth.