There are currently more than 2.3 million small businesses in Australia1. Unfortunately, an estimated 20 percent of new small businesses in Australia will fail in their first year, and up to 60 percent of start-up businesses will not survive beyond five years of launching. To help give your start-up business the best chance of survival, we’ve asked BOQ’s business banking experts for their insights into the top reasons why small businesses fail and how to avoid becoming one of them.
Starts-Up Fail Reasons
- Lack of research
- Not having a business plan
- Not having the business funding they need
- Financial mismanagement
- Poor marketing
- Not keeping abreast of customer needs or the competition
- Failing to adapt
1. Lack of research
One of the most common reasons for start-up businesses to fail is that. There is no market need for their product or service, so, one of the most important first steps you need to take when you are setting up a business is to conduct research into everything from the existing market, current, and future trends in your industry, to who your competitors are, who your target audience is and what will motivate them to do business with you.
2. Not having a business plan
“A good business plan can help you get clear on the direction of your business, identify strategies and an action plan for you to achieve your business goals, and help you secure the financial backing you need to start or grow,” said Martin Hoffman, BOQ Business Head of Corporate, Victoria and Western Australia.
Writing a business plan is an important step towards setting up your new business and achieving your business goals. On the flip side, without a plan, your business is vulnerable to one of the most common reasons for small businesses to fail – mismanagement. Having a business plan will also help you stay focused and on track.
3. Not having the business funding they need
Running out of cash or not understanding what costs are involved. Setting up and keeping a business running are common traps for many small business owners and the reality is that not every small business owner has the capital to cover the costs associated with starting a new business. So, that is why understanding the fixed and variable costs associated with starting your business should be taken into account when you write your business plan. Talking to a small business banking expert will help you understand. What financial assistance you may need, whether you need to apply for a business loan, equipment finance, or find out about government support for small business owners.
Tip: Never forget that ‘cash is king, even profitable businesses fail due to a lack of cash flow. So it is important to negotiate across all aspects of your business, can’t wait too long for your customers to pay for your goods and services, and always try to negotiate payment terms with your suppliers that are consistent with the cash needs and demands of your business.
4. Financial mismanagement
Aside from not having the business funding you need to start up your business. Can`t understand how to manage your cash flow or stay on top of all your financial responsibilities as a small business owner can be a recipe for disaster.
Cash management must be a top priority for small business owners. Because if your cash flow doesn’t balance out, you’ll find yourself in deep water fast. That’s a business risk you want to avoid at all costs.
5. Poor marketing
Unfortunately, many start-ups think it is a case of ‘build it. They will come when it comes to promoting their new business. A thriving small business needs a regular stream of sales and customers – and you need a marketing plan to do that.
Depending on the nature of your business and who your target audience is, a good marketing strategy will have the right balance when it comes to attracting new customers (acquisition) and building a base of loyal existing customers (retention).
Striking a balance between ‘traditional’ offline marketing activities (such as advertising, direct mail, letterbox drops, local area marketing, posters and flyers, business to business marketing) and digital marketing (including having a website for your business and using social media for business pages to target your audience).
The good news is that there are many ways to market your small business on a budget, but you must monitor and measure the results to avoid wasting valuable funds.
5. Not keeping abreast of customer needs or the competition
Building a loyal customer base requires. Knowing who your target customers are. How you can connect with them? But it’s also vitally important that you have the measures in place to stay on top of what your customer’s needs are. If you fail to understand what your customers expect from you (through customer feedback surveys, monitoring and responding to comments on your social media business pages, and simply talking to your customers) you risk losing those loyal customers to your competitors.
Speaking of competitors, you also need to keep track of what your competitors are up to – because if they do a better job of fulfilling your customer’s needs, you’ll lose business to them.
6. Failing to adapt
Starts-Up Fail small business, as in life, things don’t always go to plan. Whether it’s responding to changing trends within your industry, unexpected events (like the COVID-19 pandemic or natural disasters), the impact of broader economic issues (such as changes to interest rates, government assistance, and support), or even changes to your situation (due to illness or other challenges), it’s inevitable that your business will face challenges along the way. You may have to pivot away from the wrong product or service, a bad hire, or an unfortunate business decision to survive. The most important thing in this context is to stay attuned to what is happening inside and outside your business and
