6 statistics small business owners need to pay attention to, and how to avoid becoming one

6 statistics small business owners need to pay attention to and how to avoid becoming one.jpg

If you are a small business, no doubt you’re worried about the statistics that indicate you could fold up any time within the next five years. But it's not all bad news. The latest findings from a US Bank study have revealed the reasons why most small businesses fail during this time. So why not take a look at these six statistics and see how you can avoid these pitfalls.

1. Small business cash flow problems are responsible for 82% of failures

Poor cash flow management is one of the main reasons most small businesses fail. Your cash flow is generally an indicator of your business’ viability and takes into account your income minus your expenses. You can identify if you have a cash flow problem by running regular cash flow statements. To be viable you should be experiencing positive cash flow overall, especially in your operational activities. Cash flow issues can be caused by things such as late payments from customers and squeezed margins, but identifying them will help you put provisions in place so you can continue to operate and make you more likely to be given future funding to promote expansion.

2. Not having enough cash when starting up results in failure for 79% of small businesses

Many businesses forget to budget for what happens after they’ve opened their doors. To avoid running into this problem, you need to budget for at least enough cash to run your business for six months after you start trading. As a rule of thumb, you must be able to run your business for at least one year without expecting funds from sales.

3. Lack of thorough research and planning leads 78% of small businesses to fail 

A well-developed business plan makes it possible to run your company with a coherent and strategic vision. On top of that, by researching your industry, local/national economy and competitors carefully, you can anticipate problems and learn from others who are succeeding. It’s never too late to start identifying your threats and opportunities.

4. 77% of small businesses don’t succeed due to improperly pricing their products or services 

Avoid the temptation to severely under-price your products or services in the hopes of increasing trade. While you may think you are undercutting the competition, you can actually make your business unsustainable in the long run if you aren’t making enough of a profit to operate on. When setting prices, be sure to account for all your expenses in providing the product or service, rather than just plucking a number out of thin air. 

5. An over-optimistic attitude to potential sales and cash flow puts 73% of small businesses in danger

Optimism can give you the perseverance to succeed in business. But don’t confuse it with ignorance. Careful planning and understanding of your industry will help you avoid huge disappointments. It’s better to err on the side of pessimism by taking into account any issue that could go wrong and planning for those eventualities, such as losing a supplier which could impact your cash flow. 

6. 70% of small businesses fail because they do not consider their problem areas and fail to seek help from experts

Every business has a weakness. Is yours lack of branding, business acumen, a broad customer base, or limited financial reserves? Take a long look at your business and be honest about where the problems lie. Next, identify the experts or training which can help you overcome them, whether it’s enlisting the help of a marketing firm, narrowing down your target customer, building strong business relationships or finding alternative sources of revenue for times when working capital is low. 

If you need financial support to ensure your small business makes it through its first five years and beyond, we can help. At LVRG, we fund America's small businesses by providing working capital and cash flow solutions. Talk to us any time and see how we can be of help to your business.