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15 reasons why businesses fail (and how to succeed)

Whilst failure is a reality for some businesses, you don't have to go through it to learn from the mistakes of others. In this article, we look at the top reasons that regularly cause small businesses in the UK to cease trading.

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1. Poor cashflow

Cashflow is the life blood of your business, without it you cannot survive. Even the most profitable firms can find themselves going out of business because their cash is tied up in unpaid invoices.

2. Lack of focus

If your business is trying to be everything to every man, then you're bound to overstretch yourself and your resources. By establishing a niche for your business and focusing on being great at what you do best, you will provide better service and create more satisfied customers. Without focus and achievable goals, many businesses find it hard to set priorities and achieve their full potential.

3. Lack of planning

The most important document that any business has is its business plan, which documents what you intend to achieve during the next 12 months and how you plan to do it. This needs to be communicated to everyone in the business to ensure everyone is working for the same goal.

4. No performance monitoring

So you have a plan, but that's not the end of it. You should constantly review your progress to ensure you're meeting your business goals and that your staff are meeting their personal potential.

5. Lack of insurance

If you don't have the correct cover for your business, the results could be catastrophic should the worst happen. Ensure you have the right insurance for your business activities and look at whether you can benefit from enhanced legal expenses insurance.

6. Relying on a small number of customers

Having a small number of loyal customers is, in itself, not a bad thing. If we follow the 80/20 rule then 80% of your sales will generally come from 20% of your customers, but you need to consider how you would cope if your largest client went bust.

7. Insufficient knowledge of the market

To be successful in business you need to have your finger on the pulse and constantly adapt your business to meet the changing needs of your target market. You should continually carry out research into what your customers want and know what your competitors are doing to meet that need.

8. Poor management structure

Leadership has to start at the top of the company, but there is more to the success of a business than the owner. Hiring the right people to delegate responsibility to, who you can trust to carry your business forward, is crucial.

9. Insufficient funding

Without new investment flowing into businesses, many companies have found it difficult to grow – even if demand for their product exists. Bank funding has become increasingly harder to come by in the past three years, but alternative sources of finance are available including grants, peer-to-peer lending and funding marketplaces.

10. Tax bills

HM Revenue & Customs is the biggest creditor in business insolvencies in the UK. To avoid the tax man knocking at your door, you need to stay on top of and budget for tax and VAT bills, and stick to deadlines so that you don't incur large fines.

11. Poor location

If your business depends on passing trade or ease of access, location is key. Before settling on a business premises, make sure you do your research on the area and try to estimate foot fall. When first choosing premises for her Coffee Republic chain, entrepreneur Sahar Hashemi would stand outside potentials sites counting the number of people who walked past. Also, try to avoid being tied into unnecessarily long leases.

12. No data security or back up

The information that you store about your customers, employees, and business activities is not only highly sensitive but incredibly valuable to your company. Losing this information to security breaches or physical damage is potentially devastating for a business of any size. For more information, read our guide to protecting your business from data disaster.

13. No succession planning

If you want your business to succeed even once you've left it, effective succession planning is vital to ensure a smooth transfer of ownership.

14. Growing too quickly

Many businesses – especially in the early stages – try to grow too quickly, funded by lots of borrowing, which results in crippling interest charges. Growing slowly will give you more chance to assess demand, understand your market and expand in a sustainable way.

15. Not seeking help

Seeking professional advice and help can really boost a business. According to the National Business Survey 2010, businesses experienced 18% better growth rates and better financial management when they took advice from business support organisations.

To find out how the Forum can help your business on any of the issues above, call us now on 0845 130 1722.