Starting a business can be one of the most exciting — not to mention rewarding — things you can do. But it’s important to go into the process with open eyes. The reality is, almost all of small businesses fail within five years. While statistics vary slightly according to timeframe and the country under consideration, Bloomberg found that 8 out of 10 businesses started by entrepreneurs fail int he first 18 months, while the US Small Business Administration found that over 50% of small businesses fail in the first year, and 95% fail within the first five years.

Those are some pretty scary numbers … so what’s going on there? Why are all these businesses failing? And most importantly, what can you do about it?

Most small businesses fail because of:


A lack of experience

There’s been such a boom in the small business world over the last 10 years that it sometimes seems like everybody has started a business at some point or another. And while it’s great that the barriers to entry to the business sector have been lowered by things like the rise of Internet entrepreneurship, when you’re surrounded by success stories, it can become easy to think that starting a business is, well, easy. The truth is, it takes experience to run a successful business, so if you don’t have it yourself, you definitely need to be talking to someone who does.


A lack of funding or poor money management

There’s a lot that you can bootstrap in a small business, especially when you’re first starting out, but the old saying that you have to spend money to make money is a cliche for a reason: it’s absolutely true. Many businesses fail because they simply can’t get the funding they need, or worse, the people running them just don’t have the money management skills to make the most of what they do have.

This is one area that’s incredibly important to get nailed down right from the beginning, so if you own a small business (and especially if you’re just starting out) make sure that you’re talking to your accountant regularly. They’re not just there to do your books — they can give you advice on financial management too, so take advantage of it!


Unexpected growth or expanding too fast

This one can seem kind of counterintuitive. Growth seems like it would always be a good thing, especially if you’re fairly new to business or if you’ve been in a slump for a while. But it’s really important that you’re able to control the growth of your small business; otherwise you’ll end up with all kinds of problems, from supply issues to management crises to difficulty with staffing. The best way to avoid this is to work with someone who’s more experienced in business, or to get expansion advice from your accountant, who can make sure you’ve got the finances to back your expansion and also help you with things like business planning.



I’m sure you knew about this one going in — every business has some sort of competition, even those that are incredibly specialised or incredibly successful. This is a constant risk in the business world, but it doesn’t have to be the end of your business. As long as you’re aware of it, you can take steps to remain competitive in the market.

One big mistake people make here though is only looking outward at the competition. While it is important to know what the people in your sector are doing, it’s equally important to look inward at your own business to see how it fits into that sector. This means getting clear on things like your Unique Selling Proposition (USP), your target market, and how you can best communicate that USP to them. Combine that with a good understanding of your competitors’ USPs and how they’re approaching your common target market, and you’ll be well on your way to beating them.


Bad management

One of the fastest ways to kill a great, healthy business is with a bottleneck. Unfortunately, this type of problem is also very common in small businesses simply because the nature of the business is often much more personal than more corporate businesses.

When you’ve founded something, it can be so hard to back off and let other people take the reins, but not doing so will cause endless problems, and will eventually run the business into the ground. So make sure that you’re willing to delegate, know how to do that well, and hire the right people from the start. (This is where having a plan for growth will absolutely save you — if you know when and how you’ll be expanding you can plan ahead and make good management and hiring decisions instead of having to make them on the fly and hoping everything turns out for the best.)


An unclear business plan (or no plan at all)

So many small business owners just dive into running a business and hope that things will work out. And even those that do plan ahead often find that their business plan becomes entirely theoretical in the face of the practical, day to day aspects of actually running the business. But it’s essential to be able to keep a bigger picture view of your business.

Otherwise, you’ll likely end up doing things without really knowing whether they’re getting you closer to your business goals or not … and you may even be doing things that are counterproductive. Not to mention the fact that a business plan is almost always required for getting any kind of financing from a bank or other financial institution. If you’re not sure of how to get started creating a business plan, we’ve got a free resource for you right here.


Not keeping up with the times

This one is a bit less concrete than the other reasons, but an unwillingness or inability to keep up with the times in your industry — whether that’s market trends, new research, or new developments in technology — will seriously hobble your business. In fact, that’s one of the reasons we’re so hot on people moving over to cloud accounting.

Not just because it’s a great system that makes things much easier for both you and your accountant, but also because it can truly help your business to succeed. So whether it’s a trend in your target market, a mobile-friendly website, good social media, or accounting software, make sure that you’re at least aware of the new industry norms — and follow them when you can, because you can bet that your competition will be.


Posted by Darren Taylor

Darren is a Marketing Manager specialising in Digital Marketing