According to the most updated research on small businesses, 20% will fail within the first year. That means one-fifth of all companies will open and close within 12 months. If you aren’t shocked by this, then you should be. It’s an alarming stat that shows just how hard it is for new businesses to get off the ground.
Perhaps the most worrying thing is that this figure hasn’t really fluctuated that much over the years. It’s been known for some time that this is basically the failure rate of small businesses within a year. How can this keep happening? You’d think that, somewhere along the line, people would realise this and try to stop it.
As it happens, the failure rate is high because so many small businesses make the same mistakes. If you collected all the failed companies in the last 12 months, you’d see an alarming pattern emerge. Typically, at least one of these errors will be found:
Today, we’re going to look at all of these common mistakes and show you how to avoid them!
Overspending
You can already see why overspending is an issue. In fact, this is a problem that lots of companies face – big and small. The more you spend, the harder it is to make a profit. However, many of the more established businesses can still generate profits with a higher net spend than your small company.
Primarily, the issue is that you spend too much cash in the initial startup phase. You keep spending money, but your small business isn’t bringing much in. This means you keep making a loss month after month.
To make matters worse, you probably financed your business using loans. Therefore, you have debts to pay and no profits to use to pay them. You can see how quickly things go downhill. The solution is to limit your overspending. By coyer about what you purchase – try to invest in things that directly benefit your business and can increase sales. As the sales go up, the spending becomes less of an issue.
Lack of marketing
It’s absurd how many small businesses don’t understand the importance of marketing. Perhaps this is because many small companies focus on niche markets. You set up a new coffee shop in your town, which means you only focus on local consumers. Consequently, you deem it unnecessary to create a big marketing campaign to promote your business. Instead, you rely on word of mouth recommendations.
Of course, this is nonsense. Every business needs to have a proper marketing campaign leading up to its launch. This is then carried on by an ongoing strategy that keeps promoting your business and drawing in new customers.
Focus on digital marketing as it is the most cost-effective way of promoting your business. Even something as simple as creating a Facebook page and sharing your business will help you draw in new customers. As a result, more customers means more money, which will keep you afloat.
The importance of a marketing strategy cannot be under-stressed. It is how you generate leads and push them through your sales funnel. While marketing at all times is vital, it’s particularly important before you open. A good pre-opening campaign creates excitement around your new business, meaning people will be lining up outside your doors.
Too much downtime
Downtime is a dangerous thing for a small business. Effectively, it refers to time spent doing nothing. You should never find reasons to do nothing in your business. Even if you don’t have clients demanding work, you need to use your time more effectively. Focus on marketing, perhaps!
However, downtime often happens due to issues within your business. Most notably, IT and technology problems. There’s an overreliance on technology in modern times, leading to an increase in technology issues.
This can include your internet connection dropping, software issues, hardware problems, security threats, and so on. Small businesses tend to ignore these things until they hit them. Then, you waste time trying to solve the problems, leading to increased downtime. As a result, you miss out on potential chances to generate leads and sales.
The obvious solution is to stop relying on technology for everything. Unfortunately, that’s not possible or recommended. Instead, be sure your small business has IT support set up and ready to protect your business. You can outsource a support team to slash the costs, and they basically monitor everything for you. They’ll prevent problems and have things back up and running if they do fail. Thus, downtime reduces and productivity increases.
Unrealistic or unachievable goals
Finally, your small business is guilty of having goals that are simply too far out of reach. This is a key reason many small companies fail within a year. You aim too high, which ultimately means you fall very fast. Overextending yourself too early on will drain your resources and push your company beyond the realms of repair.
Instead, you need to set realistic business goals for your first year. Don’t set the bar too high. If you achieve your goals and surpass them, that’s awesome. But, if you set yourself, say a target of making one million sales in the first year – what will happen?
You’ll start spending so much money trying to invest in marketing and getting as many sales as possible. The problem is that your goals are so unrealistic you’ll never reach them. You spend, spend, spend, draining your company and leading to bankruptcy. Create a business plan that’s actually achievable and includes goals that help you thrive, rather than ones that make you overextend.
In summary, it’s very easy for a small business to fail. You’ll note that these four mistakes are so effortless for you to fall victim to. This is why the failure rate is consistently hovering around the 20% mark for the first year! In most cases, if you can get passed the first two years, then you have a real shot of making it. Avoid these mistakes and you’re on the right path.
