Top five reasons for startup business failure

By | 20th October 2015

Top five reasons for startup business failure

Micro, small and medium size enterprises (SMMEs) are the lifeblood of our economy, creating an ever growing need for entrepreneurs to pursue their own ventures. This is easier said than done however, as we pointed out in a recent blog post. There are many fears entrepreneurs are faced with when starting a new business. In most cases, fears align directly with the actual reasons why new businesses don’t make the cut. We had a look at the top causes of startup business failure and how you can avoid becoming just another statistic.

1. Poor financial planning

No surprises here – statistics have shown time and time again that not being able to effectively manage finances sinks most startups. Not properly setting up an initial budget, failing to forecast correctly and not remaining on top of recordkeeping and cash flow management are usually the main culprits that go straight for the entrepreneur’s jugular. In most cases you will be the one responsible for managing finances in your new business. But you don’t (and shouldn’t) have to go it alone. There’s a number of easy tools and small business software available to help take care of the books so you can do business.

2. Not reaching your target market effectively, or even at all

Missing the target is second on the list and goes hand in hand with poor financial management. If no one is buying your product or service, the money in your startup coffers will evaporate quicker than you can say ‘I should’ve done market research’. As time-consuming and tedious as it might seem, market research is the difference between a thriving startup and business failure. You want to put as much effort into your research as possible, as a half-hearted effort can result in poor data, and in the worst case scenario, you could end up trying to sell a product or service that no one wants or needs.

3. Failing to plan for the future

One of the biggest mistakes entrepreneurs make is having a short-sighted outlook of their new business. While there are a million and one things to address daily, not being prepared for growth is preparing for business failure. Think of the big picture and constantly re-evaluate your outlook as your business grows. This includes keeping track of factors such as office space, financial resources, assets and most importantly your team. Not being able to keep up with the demand for your product or service will put immense pressure on your cash flow and could implode your business.

4. Running before you’ve learned how to crawl.

It’s all good and well to look towards the future, but don’t get caught up in it. Too many startups get a taste of success and start taking on more than they can truly handle. Not only is this putting you under unnecessary financial pressure, but should you have a workforce, you’re pushing their capacity to the limit. The result? Financial and mental burnout – something that will send you down the path to business failure at full speed.

5. Not having the right processes and procedures in place

The Silicon Valley-glamorised idea of running a startup has led to many entrepreneurs throwing caution in the wind when it comes to processes and procedures. The truth is that most of the successful startups, including the big kahunas like Google, had stringent procedures in place to ensure business continuity. Without procedures you have very little to no control over what happens in your business. This leads to disorganisation, poor service delivery and a workforce without direction – and ultimately could lead to business failure.

SMEasy understands the risks and rewards involved in starting a business. This is why our online accounting and small business software is designed specifically with the startup owner in mind. Our easy-to-use system requires no accounting knowledge and assists with the automation of daily financial activities such as the creation of quotes and invoices as well as staff payroll management. For more information on how to optimise the financial management of your small business, download our free Guide to Startup Finance 101.

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Startup Finance 101


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