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Why do so many businesses fail in their first five years?

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Starting a new business is an exciting period in your life, not least because you are motivated to work for yourself, enjoying the many benefits it can bring. You will no doubt have had a product or service in mind, researched its potential demand, and focused on offering something your competitors don’t. However, it is likely that you will become tired of the long hours involved in running a business, and won’t have the necessary expertise in all areas to maintain a profitable company. Data indicates that 80% of companies will fold within the first five years, and here are five reasons why.

Your product or service

Although you may believe that there is a market for your product or service, be sure to back this up by conducting market research to obtain the actual figures. You must be sure that people are willing to pay for your product, and that it is better than your market competitors. You must also be willing and able to introduce new services or products, while also improving the existing ones. This allows you to continue building sales while maintaining existing customer relationships.

Business plan

The importance of a business plan cannot be stressed enough. A carefully prepared plan will give you a detailed outline of how your business is performing, where it is heading and how you will reach your objectives. If you decide to ‘wing it’, your company is likely to lose momentum after a year or so.

Recruitment

Although you may not need many employees to start with, you do need the right people in place to help you succeed. Outsourcing is advisable in areas where you may not have sufficient time or knowledge to be effective. An outsourced accounting solution will help you maximise company resources, while helping you create a business plan for the short and long term.

Recordkeeping

Maintain accurate business records from day one, as this will ensure that you are aware of business finance at all times. You will also remain compliant with legislation and avoid a hefty penalty charge from HMRC due to inadequate recordkeeping.

Making changes

As your company progresses, you may realise that your original plans are no longer relevant or you need to make amendments. Don’t be afraid to do this and admit that something isn’t going to work the way you had planned. Seeking professional advice can help you to make decisions and changes when necessary.

If you would like to discuss the future of your company and how we can help, why not call us for an informal chat?