Did you know that 50% of startups fail in their first couple of years? It’s an astonishing statistic.
Large turnovers don’t necessarily mean you’re profitable. Beneath the façade of success, huge fissures could be opening in a startup’s earning model, simply because a few key responsibilities aren’t being met. Financial management can soar over many heads until it’s too late, and this plays a huge role in the 50% failure rate.
I’m guessing you want to be in the successful half instead. That’s why it’s imperative to know where the cracks may be, how they affect your business, and how to fix them.
Where the 50% collapse stems from
Most business owners know their niche, and the demand they’re satisfying. Startup mentalities are built around independence and relying on your instincts to fill a gap in a market.
So why do only half of these ventures survive? We can pin it on overconfidence. Too many people try to run before they can walk. The UK has some of the fewest roadblocks to starting a business. Compared to Switzerland, for example, where 10,000 Swiss francs must be accounted for in share value, there’s very little to stop a company from forming in a matter of days. If you have an idea, a vision and the right paperwork, that’s considered enough. Except it isn’t. Not really.
Over the months and years in which a startup becomes active, they can forget (or totally ignore) some financial principles – each pulling them further into the 50% chance of dissolution.
A few major pain point
From my perspective, here are the primary reasons for a startup’s failure:
- Poor basic bookkeeping and accounting knowledge. This catches thousands of people out every single year. Cash flow, control measures, invoice tracking, and countless other financial elements all require close attention.
- Missing legal responsibilities, such as compliance and health and safety. If you have 10 staff on-site, for instance, there should be at least two members with health and safety training. Failure to uphold certain rules may result in a huge fine.
- Bad debt management, which often involves poor communication between creditors and the business leader themselves. Both parties must be sure that they’re on the same page.
Why financial help matters
When everything I’ve just described starts to mount, the pressure can become too much.
A client of mine (who you can read about in my latest case study [LINK > A New Look At A Fashion Brand’s Financial Potential]) had this very problem. Her fashion business had an annual turnover of £2m, but she could barely afford to pay her staff. Several fiscal mistakes had built up over time. Creditors were threatening to take her down and put her in the 50% startup graveyard. It was a tough situation, yet RJF Accounting & Business Support helped pull her through it.
The trick is surrendering some measure of control. Owning a business may lead you to handle every financial matter yourself. That isn’t necessary. When you’re starting out, or riding great momentum, a financial expert can alleviate any worries. Even if the business does fail someday, a paper trail helps you prepare for the investigation as to who’s liable for what.
People like me can resolve such concerns. It’s my passion, and my duty to every client. The sooner you take advantage of a financial management and business growth specialist, the less likely you are to run into trouble
Contact the RJF team today for more details. Meanwhile, consider where your business may be in need of a little more control. These are discussions worth having, at any stage in your development…