Starting a business and building it is a daunting and difficult task. The reality is that many businesses simply do not make it. In fact, over half of businesses fail within the first three years and of those, almost half are actually profitable!

There are many reasons why businesses fail. Some do not make it due to poor business planning or bad decisions. Others are victims of economic downturns and have nothing to do with management. 

However, by understanding the most common reasons why businesses fail and how to prevent these reasons from materialising you can put your best foot forward and future proof your company to the best degree possible. 

Why Do Businesses Fail

1. Lack of Proper Planning and Research

One of the most common reasons why businesses fail is a lack of adequate business planning and preparation. This often includes market research to best understand the levels of demand and the quality/quantity of competition. Many businesses are launched and invested in prior to proper planning being conducted.

Part of business planning should also include legal and regulatory issues. For businesses working in a highly regulated space, it’s important that you set yourself up with the right certifications, accreditations and/or licenses from the beginning. 

2. Ineffective Management

Another reason for the failure of some businesses is ineffective management. Perhaps poor leadership is at fault. Maybe it was an inability to adapt to changing circumstances. Either way, effective management is critical for guiding a company through its initial growing pains and beyond.

3. Ignoring Customer Needs

Whether the product/service fails to connect or impress customers/clients or the evolving market demands are not understood and listened to, failure to attract and retain customers is a common reason behind businesses failing. Even customer service can play into this. If the right level and style of customer service is not available, even customers who are fans of your core offering will end up going elsewhere. 

4. Inadequate Marketing

In some circumstances, businesses fail not due to management or the quality of the goods/services on offer but due to the lack of awareness in the market. Without effective marketing, businesses may struggle to attract the necessary attention they need to bring in and keep customers. 

It’s not all just about quantity either. Spending more money doesn’t necessarily make for better marketing. It’s critical that your marketing spend is targeted, considered and part of an overarching strategy. 

5. Insufficient Capital

Of course, many businesses – even profitable ones – fail due to insufficient funds. Without access to secure working capital to sustain operations, invest in ongoing growth and development, and weather unexpected interruptions to cash flow a business can be vulnerable to failure.

Preventing Business Failure

Better Business Planning and Management

To ensure your business is best prepared for success and not prone to the common reasons why businesses fail, it’s critical that you (a) put together a proper business plan and (b) invest in ongoing management training and development.

Your business plan will help you create a roadmap for ascertaining market demand and opportunity, outline your strategy for accessing required capital, detail marketing plans and commit to a growth strategy to ensure success.

As a business owner, you’ll simultaneously want to invest in obtaining the knowledge and skills for effective management of your business in all areas: From financial management to human resources. 

Financial Solutions

However, without access to working capital no business can stay viable for long. That’s why robust, flexible and tailored financial solutions are necessary to ensure success. At ScotPac, we work with small and medium sized businesses across all sorts of industries to help fuel their success and growth with the right financial facility 

Invoice Finance

Invoice Finance is all about unlocking the value in outstanding invoices. Instead of waiting the full length of your term period, you can access up to 95% of the value of the invoices immediately to cover operational expenses, invest in ongoing growth and ensure financial sustainability of your business.

Trade Finance 

Trade Finance can be invaluable for businesses needing to boost their purchasing power. New businesses involved in importing from or exporting to international markets can face significant risks and challenges in establishing relationships. Trade Finance can help mitigate these lists by enabling smooth cross-border transactions, operations and business relationships. 

Asset Finance

To ensure your business is set up for success, you need the right equipment, vehicles or machinery. Asset Finance can help fund both new and pre-owned assets to ensure your operations can not only continue seamlessly but can grow to meet your cash flow needs. It’s a reliable, affordable way to build up your business’s capacity and growth. 

Business Loans

Last but not least, Business Loans are effective and fast ways to fuel growth of your business. With a team like ScotPac behind you, finding a flexible, customisable business loan that suits the specifics of your needs and circumstances is hassle-free.

Partnering with ScotPac

There is a lot that goes into ensuring a business succeeds. And while there is more than one reason why businesses fail, if operational expenses are not covered, inventory not ordered, suppliers not paid and employees not remunerated, no matter how good your business offering is it will not succeed.

Fortunately, ScotPac – as Australia’s largest non-bank lending specialist – can provide highly tailored financial solutions to fuel short-, medium- and long-term business success. With an unrivaled breadth and depth of service capabilities, our lending team will work with you to understand what you need to build a successful and enduring business.

If you’d like to explore the range of financial solutions on offer or discuss how else to future-proof your business and avoid the reasons why other businesses fail, make sure to reach out to your local ScotPac office today.