I’m sorry to be the bearer of bad news, but the odds are stacked against you when you start a new business. You need a certain grit and determination to be an entrepreneur. 20% of new businesses fail in their first year, and a staggering 50% of startups won’t survive until year five.
Whilst that entrepreneurial grit and determination will take you a fair way in business, there are other factors at play too. Some of those external factors are out of your control and they can break your business. It’s important to be aware of the warning signs and to know how to respond to them.
If your business has taken a downturn, we’re here to help. In this blog, we’ll share the main reasons why small businesses fail and some expert tips on what to do if you’re a struggling business owner.
What are the Most Common Reasons for Business Failure?
There are many internal and external causes of business failure. The most common reasons include:
- Cashflow problems
- Poor management
- Poor business planning
- Poor market research
- Overtrading
- Unexpected market changes.
Failure comes to seemingly successful businesses too. Learn from these well-known big business failures.
What are Some Warning Signs that My Business is Failing?
Diminishing Cash Flow
If your funds are constantly low, your business could well be in trouble. It’s important to figure out the root cause of the problem so that you can attempt to solve it. Problems with cash flow often come from bad debts which can’t be recovered. You may find yourself borrowing money to pay bills, creating more debt on credit cards and with business loans. Cash is really important in the short term to ensure a business functions. Cash flow’s the lifeblood of a business and when it dries up, you’re in trouble.
High Staff Turnover
Unhappy employees who don’t see a future with your company will jump ship. They may spot issues before business owners do, especially if they’re on the front line with customers. If that’s happening a lot, you have a very real problem to address. You need to improve staff retention.
Sales Downturn
It’s natural for sales to go up and down, and seasonal trends are typical. But when they’re constantly down, you need to take action. Pinpoint what’s caused the dip and react quickly. Where have your customers gone and why?
Lack of Buzz
If your social media posts get a tumbleweed-like response, it’s not a good sign. When customers stop talking about your business, no longer share reviews or engage with your marketing campaigns, it’s a sure sign that you’re not getting things right.
Non-stop Problems
Entrepreneurship involves a lot of fire-fighting. That goes with the rocky business territory. But if you’re constantly facing problem after problem, then trouble’s afoot. In order to nip an issue in the bud, you need to identify the root cause. Fixing that single source could be prevent future problems arising.
8 Steps to Saving a Struggling Business
1. Change your mindset
A positive growth mindset will help you to tackle challenges and deal with setbacks effectively. An optimistic approach helps you to take a good look at what’s happening to your business and find alternative solutions. Don’t stay fixed to your business plan if it’s not working. Make adjustments, evolve and adapt your business accordingly.
2. Perform a SWOT Analysis
Take a long, hard look at your business to find the root cause(s) of your problems. Identify your small business’ strengths, weaknesses, opportunities and threats. Find out what’s going wrong – and that could be anything from an outdated business model to operational processes or ineffective partnerships for example. This process can help you to get back on track.
3. Understand Your Target Market
It’s essential to truly know and understand your customers. What are their needs and pain points that can be solved by your products or services? Where can you find them? If the market’s changed, you may need to shift your customer base and try different marketing efforts. Your market research may highlight a need for new products or a change in sales strategy.
4. Set SMART Goals
Armed with this knowledge, you can make a better business plan with realistic objectives. This will provide you with a roadmap to business transformation. Specific, measurable, achievable, reasonable and timely goals don’t need to be huge. They work better if they’re smaller steps that can be reached frequently. That’s a good motivator to keep driving forward.
5. Scrutinise Your Finances
Drill down into your financial situation. Get a really clear picture of money coming in and going out. Catching financial problems early can avert bigger issues. If there’s a lack of cash flow, high external liabilities or debt, you’ll need to address them. You may need to cut costs, review pay arrangements and gain control of spending. For starters, send out invoices and chase up any unpaid ones.
6. Consider Alternative Funding Options
Businesses going through tough times may not be good candidates for business loans from banks, but there are alternatives. Look into invoice finance, asset-based lending or merchant cash advances if traditional lenders aren’t an option for your business.
There may also be rescue options available to you. You could sort out a Time To Pay Arrangement with HMRC to repay tax debts over time. A company voluntary arrangement (CVA) involves restructuring debts temporarily and creating a formal payment plan to your creditors. Get professional advice from an insolvency practitioner to find the best option for your business.
7. Be Customer Focussed
Listen to your customers to pinpoint problems. Find out why they’re going elsewhere. Take note of any negative feedback and use it to make changes to your business. Is your e-commerce experience too clunky? Have they received poor customer service? Is a competitor beating you on price? Your customers are central to your business (what is your business without them?), so make them part of your decision-making process.
8. Be Proactive
Entrepreneurship takes guts, and in tough times, you’ll need to dig deep. Adopt that business growth mindset and fight for your business’ survival. Make the changes that’ll transform your business. Your business plan isn’t set in stone. Adapt and evolve in order to bring your business back from the brink if you can. Take action to fix current problems and prevent future ones.
Don’t Be Afraid to Ask for Help
If you’re an entrepreneur experiencing tough times, you’re not alone. It happens daily. But don’t struggle on without asking for help. Phil Chantry has years of business experience and he’ll find ways to help you through this tricky time. Ultimately, you can find a way to build a successful business that works for you.
Reach out to Phil today, and take a positive step towards saving your business.
