Here at KA Farr & Co we are passionate about ensuring every new business succeeds which is why we have put together our top tips for success.
Why do new businesses fail?
According to Bloomberg, 8 out of 10 new businesses fail within the first 12 months. A whopping 80% crash and burn.
Here are the main reasons why:
Lack of planning
The first steps in setting up a new business are crucial and will give your business the best start, and a firm foundation on which to grow.
Businesses fail because of the lack of short-term and long-term planning.
Many businesses fail because of poor leadership. A good leader must be able to make the right decisions regarding financial, employee and business strategy management.
Examples of poor management are an inability to listen, micromanaging staff and working without systems. Weak leadership and bad management decisions will trickle down into every aspect of your business.
Ignoring Customer Needs
Every business will tell you that the customer is their no.1 focus, but only a small percentage behave that way. Businesses that fail to recognise their customer’s needs will lose touch with them.
Keeping an eye on the trending wants needs and ethics that your customer’s value will pay off. Find out if your clients still love your products, or have they found something else.
Do they want new features or services? What are they saying, and are you listening?
Lack Of Capital
A shortage of capital can affect your business in many different ways. It can lead to an inability to attract investors as it shows that a business may not be able to pay its bills or other commitments.
Lack of investment can make it difficult for the business to grow and jeopardise day to day operations.
“The way to get started is to quit talking and begin doing.” – Walt Disney
How do you do things the right way?
A Well-researched And Tested Business Idea
Before starting you should undertake competitor analysis. Very few new businesses do NOT have any direct competition and you need to establish who they are.
It is important that you understand what your competitors do well. Do they have excellent products or outstanding customer service? Find out what makes them successful and ensure you are doing the same things, only better.
It is also important that you analyse their business to see what they don’t do so well. Can you offer a product or service which is better than theirs, find a problem and solve it?
What Makes You Different?
It is not enough to have a great product or service. You also have to develop a unique selling proposition (USP), without this you will get lost among the competition.
What makes your business unique? You need to identify your USP and shout from the rooftops about it. If you fail to differentiate, you will fail to build a strong brand.
Develop A Marketing Plan
This will be essential if you want to raise finance and should show:
- How you will win customers.
- What advertising and promotion you will do.
- A sales forecast for the first 2 years (minimum).
- Your channels of sale i.e. website or shop.
Write A Business Plan
When you aren’t looking for an investor or a bank loan it can be tempting to skip a business plan altogether. Don’t do it!
The process of writing out your plan and detailing how it will all work is a great way to clarify and focus your thoughts and ambitions.
What are you trying to achieve with your business? Are you looking to improve lives, bring an exciting product to market or offer a new take on an existing service? A business plan should bring everything together, including a realistic timeframe for launch, sales and profitability and cost of startup.
You don’t need to create a 100-page document, but it should include all of the main objectives and planning required to make it work.
If you are looking for investment or a bank loan then this document will be your way of communicating your idea and how it will work.
It Will Need To Clearly Show:
- The cost of setting up the business Anticipated sales and growth.
- The business ‘break-even’ point; what sales you need to cover all costs.
- Cash flow and any finance required.
- How long it will take before you will be able to take money out of the business to cover your living expenses.
Now You’re Up And Running.
Plan properly for growth and success
1. Keep Your Expenses Low.
New businesses typically fail because they run out of money, so it makes sense to keep your costs as low as possible until the business has a steady income.
Only hire people you desperately need, use contractors and freelancers wherever possible. The same applies to business premises, if you don’t need the space, forgo an office for as long as possible.
In general, only spend money on the things you need, not what you think a business should have.
2. Reinvest In The Company
When making the move from a salaried job to self-employment the absence of a regular income can be scary at first. However, the first money you make should be reinvested back into the company.
The funds should be used for marketing, product investment or other areas which will grow the business.
3. Don’t Be A ‘Busy Fool’.
In today’s culture, we are busy all the time. However, you need to ask yourself how much of this activity is actually moving the company forward. It’s easy to get lost in the day to day rush, and many entrepreneurs burn the candle at both ends, but this may be detrimental to your business.
The key to success is how you spend your time and resources, ensuring you are always moving forward. When considering business decisions be it marketing, and event or partnership opportunity, think about how it will fit into your overall plan.
Don’t say yes to every request that comes your way, make informed decisions that will reap rewards.
4. Know Your Numbers
The early days of business are the time that your resources are particularly tight. Therefore it’s critical that your time and money are spent wisely. It’s easy to become overwhelmed with numbers but you need to keep an accurate overview of how your business is trading.
Never assume you know what’s going on with the figures, keep accurate records and take stock at the end of every month.
It is wise to track between 2 and 4 key measurements, for example:
- Where are your new customers coming from?
- What is your gross profit percentage per sale?
- What is your percentage share of the market?
Are your actual sales following their projected path?
To achieve this every business needs to keep good and accurate accounting records. You don’t need to worry about all of the ins and outs of bookkeeping systems and methods when you appoint a qualified accountant.
Our highly qualified team will ensure your accounts are accurate and up to date.
Learn From Your Mistakes!
Everyone fails, and we all know that is not a good feeling. Similarly, all businesses will fail in different aspects of their operation.
The temptation is to brush it under the carpet and move on, but it’s really important that you learn from these bumps in the road.
Analyse your data, customer feedback, employee comments and these will tell you where you went wrong and stop you from making the same mistake again.
Realistically businesses that fail, fail for multiple reasons. Often entrepreneurs are oblivious to the mistakes that they have made, learning from failure is a difficult process.
Here at K.A.Farr & Co, we have all of the specialist expertise needed to keep you up to date.
We will quickly identify the most effective and appropriate bookkeeping system to keep your business affairs running smoothly.
As members of the Sage Accountants Club, we can offer advice on this and other accounting software and help you to set up the system if required.
If you need help with writing your business plan and preparing Profit & Loss & Cash Flow forecasts why not have a free initial discussion with us here at KA.Farr & Co.
Get in touch today and our friendly team will be more than willing to help!