Reasons new businesses fail.

There are various studies on the subject, but generally, 30% of the businesses don't survive their first year, 50% fail before their 5th year and only below one-third survive their 10th year. Of course, there is some variance from year to year depending on the economic conditions, but these are the average numbers.

The most common reasons are:

1. Inadequate planning: A solid and realistic plan is the basis of success for your business. Having a great new business idea and the enthusiasm to run with it is just the start of a successful company. It's vital to not only have a sound product or service to take to market but to also have a thought-through business plan that maps out your company objectives, how you'll achieve them and how long they will take. Inadequate or lack of planning can be anything from marketing or resource to staffing, but the key is, of course, financial planning, which sadly is often being ignored or neglected.
2. Inadequate understanding or control of margins: A healthy gross margin is vital to business success. It is important for the management to have a clear understanding of what is driving it's margins.
3. Inadequate control of spending: It is too easy for the expenses to rise to unsustainable levels, especially in the early years of the business's life and often the consequences and huge. I often see this in the start of a business with advertising on social media that does not generate the projected returns, and instead of changing the target strategy, spending is just increased. Not only must you make sure that marketing reaches people, but it must also reach the right kind of people.
4. Inadequate stock control: In businesses trading with goods, the inventory often represents the most significant use of capital. If it is not managed properly, the result can be a fatal drain of financial resources and low margins. Having more stock than you need just ties up capital and brings extra costs for storage; having low stock means you might run out and lose clients.
5. Over-trading: Now that your business is well established, you need to grow further, but please: treat the expansion with caution, the same as if you are starting all over again. Make sure you can manage the growth rate and understand the areas and markets into which you are now reaching and you have secured adequate funding.
6. Under-capitalisation: This is where a business fails to secure sufficient funding to allow the business to establish or grow properly. Trying to stretch your finances from the very start means that your business may never get off the ground, and you will still have loans to repay.

All of the above potential contributors to failure can be avoided or at least mitigated with the early implementation of comprehensive financial planning and timely accounts.