Whether you are a new entrepreneur preparing to launch a startup, or a business owner who has just recently opened your doors, there is a lot of hope and uncertainty in front of you. Each year, thousands of bright and ambitious entrepreneurs start new businesses. If you are feeling nervous about the challenges ahead and the number of small businesses that fail, you are not alone.
The best way to safeguard your new or established business is to know what percentage of small businesses fail – because many do go on to succeed. According to the Bureau of Labor Statistics, about 20 percent of businesses close their doors in their first year, and around 50 percent fail in their fifth year. Understanding what can lead your business down the wrong path ahead of time will help you better manage or avoid those obstacles altogether.
The top 4 most common reasons companies go out of business are:
1. Market demand
Of the vast number of businesses that fail each year, nearly half (42%) close their doors because there is no market need for their services or products. Many business owners get caught up in tackling problems that are interesting to solve, rather than those that serve a real market need. Ask yourself, does your product or service solve a large enough problem? Or is it just something you think your customers might want or need? The key is to make sure you fall in love with a business idea that will work well for you and your business.
2. Lack of working capital
From cash flow management problems and limited access to working capital to raising enough funding, running out of cash was a reason for failure cited by 29 percent of startups. It is critical to be intimately aware of how much money is really required to keep day-to-day operations running smoothly. It is also important to maintain a cushion of cash for unexpected expenses and opportunities. Find out ahead of time where you can secure quick capital when you need it most, preferably cash flow solutions that do not add a burden of debt like invoice factoring.
3. Not having the right team
Sadly, 23 percent of business owners say their business plans were unsuccessful because they did not have the right team at their side. As important as it is for a business owner to have the passion, vision and skills necessary to create and sell a viable product or service, a strong and dedicated team is paramount. Having a diverse team with different skill sets is frequently cited by business founders as being critical to the success of a company. Before you launch your business, focus on attracting the right people with your vision and establish a collaborative work environment.
4. Inadequate business planning
Many business owners overlook the importance of effective business planning prior to opening their doors. Seventeen percent of founders say their business failed because they lacked a business model; they underestimated the need to identify revenue sources, capital needs, customer base, products and financing details. A thorough business plan is a very important strategic tool for entrepreneurs. Creating a business plan will not only help you focus on the specific steps necessary for your business idea to succeed, but it will also help you achieve both short- and long-term goals.
Invoice Factoring: The Fast, Flexible Cash Solution
At first glance, the percentage of small businesses that fail might make it seem like the U.S. small business sector is rocky. On the contrary, small businesses are alive and well all across the country. They comprise 99.9 percent of all the country’s firms and employ 56.8 million people.
As you get ready to launch or expand your business, consider the small business statistics shared above. Keeping a close eye on your capital sources and cash flow seem to be the keys to success – they tend to be the tipping point. If your business needs a “boost” of capital, consider the many benefits of invoice factoring.
Invoice factoring is a cash flow solution that turns your business’ unpaid invoices into quick working capital, without adding any additional debt. Rather than waiting 30, 60 or even 90 days to receive payment from your customers, you can have cash on hand in as little as 24 hours. Invoice factoring services help alleviate cash flow problems and ensure you can easily cover day-to-day operating costs.
Invoice factoring provides cash fast, there is no debt to repay and you secure unlimited funding potential. You will also have the working capital you need to research your market, find and hire the right team, purchase new equipment and supplies and create a cushion of cash for growth. If you would like to learn more about how invoice factoring works, contact our cash flow experts at Bold Business Capital to get started.
