5 reasons why businesses fail in their first year of operation - Penny Freedom

5 reasons why businesses fail in their first year of operation

It’s a pretty shocking statistic that 80% of businesses that fail in the UK , do so within their first year of operation. These numbers are alarming for anyone starting a business, but do not worry. We will be telling you why this happens, so you don’t repeat the same mistakes.

Insufficient capital

A lot of people underestimate how much money they will need to start and run their business, overestimating their expected revenue turnover. In the first year of operation, sales are usually low, and you may often be required to plough your personal funds into the business in order to sustain it.

Lack of planning

If you don’t plan, you plan to fail. Most small business owners neglect to create a business plan, and even if they do, it usually has a number of shortcomings. This sets them up for failure because they do not understand who their target market is, how they will reach them, or the potential problems they might encounter.

Poor management

We have seen poor management bring well-established companies to their knees. Business owners often lack the expertise in areas like marketing, financing, purchasing, and production, and neglect to seek help. Running your business as a one-man show increases your chances of failure, so hire skilled professionals or outsource services from third party companies.

Overexpansion

Most business people associate business growth with expansion, and this runs their businesses into the ground. You should focus on slow and steady growth and think of expanding only when you have established good cash flow and a solid customer base. You also need to be capable of meeting the increased product demand before making such a decision.

No online presence

If you are just starting your business, you won’t be able to afford to run advertisements on TV or put up billboards all around the country. Therefore, the best way to can market your business is by creating a website and having a social media presence. Digital marketing provides you with a platform to reach thousands of potential customers at little to no cost.