3 Reasons Businesses Fail, And How You Can Avoid Them

We don’t want to put a downer on your enthusiasm, but starting a business can be tough. Research shows that about two-thirds of businesses survive their first two years, yet only about half survive for longer than five. It’s therefore essential to take a sober look at your business, to make sure you’ve got the foundations in place.


There are many reasons small businesses fail, but we’ve selected three of the most common causes. Let’s look at what they are and, more importantly, see how you can avoid them.

1. Failing to Manage Cash-flow

Many new business owners will have gotten used to a monthly pay check in their previous career. They therefore expect that payment from clients will come just as regularly.

Sadly, this is often not the case.

Cash-flow is one of the biggest killers of small businesses. Clients can take literally months to pay for your services, so if you don’t have enough money saved up to keep paying your rent and expenses, especially in the early days, you’ll run into trouble.

How to manage cash-flow like a boss

Before you launch your business, you need to estimate your income and outgoings for year one of the company’s life. To be safe, you should save enough cash to keep you going without any payment at all for at least six months, and preferably longer.

2. Not Enough Planning

Many businesses fail because they lose their way. They start working on the wrong kinds of projects, with the wrong kinds of clients, for the wrong kind of pay. Instead of focusing on a specific niche and working with the right kind of customers, they take any work they can get. This means work is inconsistent, there’s no organized marketing plan, and they bounce from one job to the next until they eventually run out of steam.

How to plan like a boss
It’s essential that you develop a business plan. A business plan is a simple document where you outline:
• Your business’s purpose and goals
• A description of your product or service
• Sales and marketing activities
• Competitor analysis
Key Performance Indicators
• Income and outgoings
By following your business plan, you will focus your energy on the right kind of work and build a solid base for your business.

3. Not Enough Marketing

Many smaller companies and entrepreneurs see marketing and advertising as an unnecessary expense, with little obvious return on investment. To begin with, this might be true, especially if you get a lot of initial business through your network. However, the only way to grow is to make people who don’t know about you (yet) aware of what you do. Failing to do so will mean you only have a small pool of existing customers, and these will likely not offer enough business to keep you going long term.

How to market like a boss
You need to decide on a consistent marketing strategy which is right for your customers and your means. Read our introduction to getting more leads to help get you started.

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Len is a tech and business writer who covers small business and startup advice and has appeared in many print and digital publications. He lives in London, UK, where he's also a sub editor on a national newspaper. He loves to travel and has lived in France, Spain, Senegal and Rwanda.

How to hire a remote team for your start-up

Utilizing the skills of a remote team can make a lot of sense for your startup. It’s usually a lot cheaper to hire freelancers who work from home, since you save on office space, bills and equipment. You also get access to the best talent anywhere in the world, because your team doesn’t have to live in the same city as you. These are just some of the reasons why start-ups hire a remote team far more than bigger companies.


If you’re looking to build a remote workforce – whether for full time employees, or just to access the skills of a couple of freelancers to fill out your team, the tips below should help.

Where to find them?

Placing ads for remote workers on the big job sites may not pay off – most people using those sites are looking for ‘regular’ jobs. Instead, head to sites like:
UpWork
Flex Jobs
Remote OK
Skip the Drive
We Work Remotely
Outsourcely
Go Remote
Remotive
Posting your ad on these sites is usually free, allowing remote workers to find the job. You can also approach freelancers directly by searching for certain skills.

It’s also worth using LinkedIn’s basic search features to find people who may be interested in your remote working position.

What to look for

Now your ad’s live and you have applications coming in, what kind of traits do you want to look for in your new remote employees (besides evidence they have the specific skills you need)?

  • Good written communicator. Your remote employees need to be able to express themselves concisely yet clearly. You don’t want to wade through confusing emails, or deal with someone who offers one-word answers

Read our guide to negotiating over email for more tips

  • Motivated self-starter. You need to look for evidence that your new employee can manage themselves properly, without being constantly told what to do. If they’ve got remote working experience this might be enough. If not, ask for evidence of times they’ve worked well alone – perhaps during their studies
  • Trustworthy: you need to feel confident that your remote workers will stick to their contract and do the work you expect in the time allotted. When speaking to their previous employers, ask about times they’ve worked alone and their ability to do so

Set clear expectations

In a traditional office environment, it’s much easier to manage people face to face, using body language and verbal requests. Equally, misunderstandings can be cleared up a lot faster.

So, during the recruitment process for remote workers, you need to create job ads which are aligned with this. You need to make it super clear exactly what is expected of the remote worker – this means you avoid the risk of hiring someone who didn’t understand what you actually needed.

Business Record Keeping For Entrepreneurs

No one finds accounts and business record keeping very fun. Unless you’re an accountant, record keeping will probably feel tedious, complicated and time consuming. A recent survey of small business owners found it was the second biggest time-wasting annoyance they have – after email.


But, we also know just how important it is to keep records too. If you lose key records, or don’t ever store them, it may well come back to haunt you. If you can’t prove certain expenses you might have to pay the IRS (or the tax service in your country) more in taxes, or could even end up with a fine if you fail an audit.

Record keeping is therefore sensible. So, what kinds of records do you need to keep?

Records That Entrepreneurs Should Keep

Any small business must keep the following two types of common records:

1. Income
You must keep a record of all income (profits and losses) the business generates. At the most basic, this should be kept in a spreadsheet, detailing how much the income was, what date it was logged and who the client was (there are also many accounting tools out there that make this process a lot easier).

You would also be wise to keep a record of all the invoices you’ve sent your customers, as proof of business. It’s wise to separate your invoices into separate folders for your different customers, and update these each time you complete a piece of work.

2. Receipts
You need to keep a copy of all your receipts, so you can accurately claim expenses on your annual tax return. This includes all bills related to your property, spending on equipment, goods or even lunch when you’re meeting clients to discuss business.

By keeping a record of all your income and receipts, you know that, once it comes to paying your tax, you will be able to easily access all the information you need.
At a minimum, you need to keep these records for at least three years, although in some cases it’s wise to keep them longer (read more on the IRS’s website here).

Why Should Entrepreneurs Keep Records?

Besides basic obligations for when you file your taxes, there are several other major benefits of keeping all your records. These include:

  • View business progress
    By keeping records of income, you can view the business’s financial health over time. Hopefully, you’ll be able to plot a continual upward chart of income and profits – but it will also tell you if there are any problems.
  • Identify sources of income
    The greater the variety of services you offer, and the more customers you have, it can be hard to work out where money actually comes from.
    For instance, if you have 20 products and 60 customers, it can be difficult to think strategically and decide which products or services bring you most value – and which customers are the most important. However, if you keep consistent records, you might decide that 10 of your products bring so little income that you may as well stop offering them, and focus instead on the higher paying work.
  • Remember deductible expenses
    Remember that table you bought for the office 11 months ago? Or the lunch you had with a new client last June? Many business owners short-change themselves by forgetting to state all the expenses they could claim on their tax return. Keeping all your records makes it ess likely you’ll forget, so you can claim the tax back on expenses.
  • Prove your finances to banks or investors
    If you go to a bank for a loan, they will expect to see proof of your cash flow and financial stability. Records help you prove that your business is financially sound.

How Can Your Business Track Records?

Many small businesses use some form of accounting software to log all their transactions, and this helps them work out their tax bills. Alternatively, that kind of technology might not be right for your business, and simply keeping all your financial data in a series of spreadsheets will be enough.

Whatever approach you choose, you also need to keep other documents – such as invoices – in a central place, and most firms now opt for a customer relationship manager (CRM) where they can accurately track all information they hold on customers, and all the services those customers paid for.

Once your record keeping practices are in place, you’ll be able to focus more of your attention on growing your business, and less time on paper work!