Why do small businesses fail?

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Home » Business Finance » Why do small businesses fail?

Thanks to invoice financing we are seeing small businesses succeed more often than they did in the past when all they had to rely on was the conventional business loans from one of the major lenders.

The UK economy depends highly on small business. In fact, SMEs make up 99.9% of the UK economy, whilst being responsible for three fifths of employment and roughly half of the turnover across Britain.

Unfortunately there are still a number of small businesses that do fail every year in the UK. To help prevent that from happening, it is important to understand the main causes behind it.

Common causes of business failure in the UK

Choosing the wrong market

Brand new startups enter the UK business market by identifying a gap in the market. A lot of the time these businesses are relatively niche as they attempt to focus on an area that isn’t already saturated. Unfortunately this is an essential but risky approach that can ensure a small business sees activity but not much in the way of profits that can sustain it or allow it to grow.

Overdependence

It is always seen as the most preferable option for a small business to have a large number of smaller clients rather than relying on one large client for the majority of their profits. When this is the case, your business can become dependant on one client, meaning that if they leave, a company’s income can take a damaging hit.

Failure to adapt

Modern business is similar to the natural world – those that fail to adapt to changes around them are destined to fail completely. In the case of business these changes occur as competitors operating in the same market, advances in technology and changes in the marketplace. In business things rarely stay the same; staying ahead of the curve by questioning how you do things is key.

Not enough capital

It is the norm for a new business to make little to no profit in the first year so small businesses need to be able to sustain themselves until then. The lack of capital can happen even if a business is doing well. Those who deal with other businesses can find themselves in trouble through unpaid invoices. When outstanding invoices build up SMEs can struggle to pay their own bills or even meet their payroll requirements.

Invoice financing is a smart decision for small businesses to gain capital against their outstanding invoices and is just one of the products that may fit your business financing needs. Quote Goat has partnered with a leading business finance broker to give you access to a range of financing options from mainstream solutions through to alternative lending products such as merchant cash advances.