Lockdowns and COVID-19 restrictions didn’t slow down the number of new business registrations in the UK. In fact, almost half a million start-ups were registered in 2020, a report by Companies House discovered. Unfortunately, many businesses don’t succeed and end up failing. What are the most common reasons for new start-ups failing?
How many companies exist in the UK overall?
There are a high number of small businesses in the UK. There are millions of companies with less than 50 employees that are providing services and selling products to customers in Britain. FundSquire discovered that there were 5.82 million small business registrations as well as 35,600 medium-sized businesses with 50 to 249 employees. The number of large companies, according to FundSquire, is about 7,700. These businesses work with at least 250 employees.
How many businesses fail in the first year?
To launch a start-up means to risk a high failure rate. 20% of businesses fail in their first year and around 60% will go bust within their first three years.
The common reasons for a business to fail
Why do businesses fail so often?
• No Market need
A great business idea doesn’t necessarily mean that there is enough demand for the product or service in the market. A successful business plan usually analyses the market closely before a business is launched for this reason, making it more likely for the start-up to succeed
• Ran out of cash
Analysing your business finances on a regular basis will enable you to seek out a business loan at the right time, giving the business a cash injection which can help to boost growth. Without enough cash it is unlikely that your business will be able to grow.
• Poor marketing
Marketing strategies typically need to be carefully planned out and tailored to the brand. If not enough time is dedicated to marketing tactics, a business can fail to reach enough customers.
• Lack of skills needed within the business
Employees really help a business grow. Success-oriented and highly skilled staff can increase the productivity within an organisation and increase profits as a result. If the people working in the company don’t receive the necessary training or lack the skills to excel in their positions, a business can suffer.
A survey by CBInsights that covered employees and founders from 101 start-ups analysed the reasons why those companies failed. The main results were as follows:
• 42% of start-up businesses fail because there’s no market need for their services or products.
• 29% failed because they ran out of cash.
• 23% failed because they didn’t have the right team running the business.
• 19% were outcompeted.
• 18% failed because of pricing and cost issues.
• 17% failed because of a poor product offering.
• 17% failed because they lacked a business model.
• 14% failed because of poor marketing.
• 14% failed because they ignored their customers.
The good news is that it is indeed possible for a start-up to succeed. By avoiding the most common pitfalls and learning how to deal with difficult situations, entrepreneurs can become very successful.