New businesses have a hard time in the beginning. They have to somehow make a profit despite often needing to also pay off their startup costs at the same time.
If they are unable to make a profit or if they experience cash flow problems then they could easily go out of business.
There are three major reasons why a business might fail and not make it through their first five years:
Insufficient Knowledge – Many people simply are not prepared for the wide range of skill sets that will be required to manage their own business. In the early days, the owner will have to perform at least 3-4 job roles ranging from marketer to accountant. It takes a special kind of entrepreneurial talent to be able to wear all of those hats simultaneously.
How can you overcome this? – A good mentor should be able to help you prepare to face many of the obstacles that your business will come up against. If you are overwhelmed by your workload try outsourcing parts of it that you are struggling with – this will only cost perhaps one third of the cost of hiring an employee.
Bad cash flow management – There are many – otherwise healthy – businesses that have been caught out and have met their demise simply because of poor cash management. A period of a few months without any income can be enough to put a company out of business. If you’ve let it get to stage where you can’t pay suppliers and therefore cannot produce more goods, it may already be too late.
How can you overcome this? – Don’t rely on banks to save your business during a lean period, because they won’t risk losing their investment on a company that can’t pay their bills. You need to become fiscally responsible for your business immediately to prevent cash flow problems from ever occurring. Get some accounting software and start managing your income better so that you can build a healthy stockpile of cash for the lean times.
Lack of communication – A business that doesn’t speak to their customer base will soon be forgotten by them. Marketing is essential even if you don’t have a budget for it.
How can you overcome this? – You need to speak to your customers regularly using the most appropriate medium. Social media won’t cost your business anything (other than time) and there is no better way of interacting directly with clients and potential customers. Make sure that you build a CRM database over time that can be used to provide excellent customer service.
Fragmented software can also make life much harder for anyone trying to run their own business. The lack of proper integration and multiple subscription fees to different providers will put your business on the back foot right from the start.
To make life easier for your business don’t forget to try out some of our fully integrated CloudApps!