It’s easy for small start-up businesses to fail during their initial years. Would-be entrepreneurs are drawn in by the allure of being their own bosses and often underestimate the practicalities of running a business.
So, what threats should you be wary of as a newly established start-up business or even the director of a more established small company?
Lack of planning
Business plans are often considered essential when starting out. That said, many still ignore it. Business plans are both a plan on how that business will generate a profit and a map for its goals and how it might grow. Going into business without these can lead to a lack of direction or misdirection.
Start-ups can strike gold and make a promising start. With those high initial profits, companies can quickly start spending on additional staff or benefits that they couldn’t afford with less money coming in.
A flawed product or service
Getting the product right is part of a good business foundation. There are numerous theories as to what makes a good product or service, but getting it wrong can hinder, if not doom, businesses that lack fallbacks.
Common errors include the product lacking a market, being too niche to be viable, lacking a unique selling point, being released into an already crowded market without anything to help it stand out from competitors, or if the product is inferior in quality or features.
These problems can be avoided, or you’ll at least have a better chance of getting your product right by conducting thorough market research.
Cashflow and funding issues
Maintaining a healthy cash flow is essential to keeping a business’ finances in the black. Outgoings should be monitored to ensure that the business is only spending what it needs to and isn’t overbalancing the company’s profits.
Taking on costs outside of your price range or opting for a high-costing supplier where a cheaper one could be more financially sensible can drain the company’s start-up funds at a time when they should be used sparingly.
Getting the pricing right carries similar weight. Overcharging can deter new customers if cheaper alternatives from more well-established companies are available. Conversely, undercharging to attract new customers can leave a business short-changed if this cut pricing can’t cover production or maintenance costs.
An imbalanced cash flow can be one of the first signs that a business is insolvent. If you find yourself in such a situation, contact a licensed insolvency practitioner to explore your business’ options and potentially avoid the forceful closure of a company or a creditor making you bankrupt.
Poor Marketing
Dedicated marketing departments and independent agencies exist for a reason: marketing is hard. Even those don’t always get it right, so directors and entrepreneurs inexperienced with marketing run a greater risk of getting it wrong. Some might even avoid marketing altogether out of fear of failure and receiving publicity for all the wrong reasons. Nowadays, with so much competition, marketing is essential in giving your business and product a voice and avoiding it out of fear of making mistakes leaves that business at a disadvantage.
Unforeseen expenses
Running a business always brings challenges, but these can come thick and fast and can leave some vulnerable to debt.
Recently, Coronavirus caused severe disruption to a lot of business operations, forcing many to close altogether while others had to adapt to restrictions to continue trading quickly. Similarly, the cost-of-living crisis has seen a rise in wholesale prices, increasing energy bills and other costs for businesses. The impact on the public forced customers to tighten their belts, further eating into business’ takings.
Cyber threats
Technology’s constant evolution has allowed businesses to reach new markets and audiences. However, it’s a double-edged sword, with new threats to a business’ security and customers’ privacy frequently emerging and destroying those businesses unfortunate enough to feel the effects of malicious ransomware attacks and data breaches. Businesses should stay up to date with cybersecurity measures, software updates, and data protection to help reduce the risk of being caught out by cybercriminals.
How to alleviate your small business debts.
If you become aware that your business is insolvent and cannot repay its liabilities as and when they fall due, you should contact a licensed and regulated insolvency practitioner as soon as possible. The sooner you act, the more likely you are to achieve your preferred outcome.
Depending on the type of business you run and how it’s been incorporated, several processes may be available. These processes could include repaying in affordable instalments, restructuring a company back to profitability, or voluntarily liquidating a company before the creditors force it into compulsory liquidation.
Directors can’t undertake these formal and legally binding processes themselves, and they must be carried out by a licensed and regulated insolvency practitioner.
To summarise
Several threats and challenges can affect a start-up business or a small company, so understanding these is crucial to ensure its survival. Lack of planning, product or service flaws, cash flow mismanagement, reluctance to engage in marketing, unforeseen expenses, and carelessness around cybersecurity can all lead to a business’ early demise. Identifying these risks early, before they become a major issue, can help business owners take proactive steps to mitigate these and maintain financial stability. By staying informed and proactive and speaking to a licensed and regulated insolvency practitioner if the business is struggling, they can increase their resilience and adaptability.
Lynn Martelli is an editor at Readability. She received her MFA in Creative Writing from Antioch University and has worked as an editor for over 10 years. Lynn has edited a wide variety of books, including fiction, non-fiction, memoirs, and more. In her free time, Lynn enjoys reading, writing, and spending time with her family and friends.
