Five Ways to Avoid Business Failure

All businesses face danger all the time, and the most effective way to overcome this is to be aware of the pitfalls and plan accordingly. One in three

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Five Ways to Avoid Business Failure

All businesses face danger all the time, and the most effective way to overcome this is to be aware of the pitfalls and plan accordingly. One in three small businesses failed within their first three years of trading, and even beyond that milestone, it isn’t always plain sailing.

Many instances of failure are completely avoidable with the right procedures in place. In particular, there are five fundamental ways businesses can safeguard themselves…

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1. Have a Plan

If you don’t know where you’re going, how will you get there? Having a business plan to outline exactly where you want to be and when is paramount to business success.

This doesn’t have to be completely watertight – plans change. But setting goals and having an idea of how they can be achieved is the only way to have any chance of attainment.

2. Budget

A budget should be drawn up every year to ascertain projected sales vs. overheads, factoring in emergency funds and contingency for growth.

For best results, a budget should be regularly monitored. Failure to keep track of financial objectives will leave you with no chance of refining operations for the better.

Not understanding where cash is coming from and when whilst money is regularly going out the door can leave businesses exposed…

3. Look After Your Cash Flow

“Cash is King” – and businesses need a healthy capital to have any chance of survival. Even businesses that have no problem winning new clients can hit troubled waters if they don’t have the funds to pay for essential outlay in order to keep trading.

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It’s not uncommon for businesses to have negative cash flow every once in a while, particularly during the first twelve months of trading, and this is usually dealt with using an overdraft.

However, a business that routinely has to borrow cash month on month should review their operations to see why they’re consistently operating beyond their means. It could be that their business model is unsustainable and needs to be amended for its future welfare.

It’s really advisable for businesses (particularly small ones) to build up a cash reserve for times of need, such as when an opportunity for growth arises or disaster strikes. It could be that a significant outlay is required to complete work for a new client, or that some essential piece of equipment breaks and investment is required for the business to survive.

If there’s already some amount of cash reserve set aside in a business savings account, there’s less chance of incurring debt.

4. Understand the Industry

Understanding the market is a cornerstone of every business.  If you don’t know who the customer is, how can you market to them?

If you don’t know the forecast for the future, how can you effectively adapt?

5. Differentiate Yourself

Customers are bombarded by so many options that they are always looking for a reason to do business with one company over another. If a business has no point of differentiation, there’s little incentive for a customer to pick them – regardless of whether what they offer is of a similar quality, price and range as their competitors.

Having a stand-out marketing campaign can work to this effect. A good example of where a company’s clever marketing team has managed to put a brand head and shoulders above its competitors despite selling a fairly standard product is Blendtec and its online ‘Will It Blend’ campaign.

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This viral campaign, comprising 186 YouTube videos of various household items being blasted to smithereens using Blendtec blenders, amassed hundreds of millions of views and prompted a 1,000 per cent rise in sales over a six year period.


A lot of the time, small businesses fail for reasons that are entirely preventable. Putting an infrastructure in place to make sure the above practices are carried out on an on-going basis could be the difference between a business that becomes one of the ill-fated third, and one that survives.

Juan is a Design & Tech Blogger with strong interest in digital art, human computer interaction, enterprise system and system automation.

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