It is, unfortunately, a fact of business that not all make it.
The Office of National Statistics in March 2020 (pre-pandemic) reported that 80% of businesses don’t make it to their 2nd year of trade. Of those that do, only circa 40% are still operational 5 years later.
What are the main reasons businesses fail?
80% – 90% of businesses that fail do so because of cash flow, while other culprits are lack of a business plan, lack of financial information to make decisions, growing too fast and unsustainably, lack of market position and/or strategy, and lack of security and back up processes.
Now, there’s a few of those we can’t help you with, but there’s a trend with the majority of those reasons – and it’s all financial.
That’s right, poor financial control, planning, information and cash flow are very big reasons businesses fail – so getting your finances right is key! Its the first and easiest thing you should get right!
So, how do you get the business finances right?
It all comes down to staying on top of your financial data. Accurate and timely recording of the transactions in your business gives you all this information:
- Sales; you know your sales figures, where those sales are coming from, and if there’s over reliance on any particular customer(s)
- Costs; you know what you’ve spent, where you’ve spent it, and what the result of spending that money is – for example marketing spend, you can measure if it was effective and worth spending again
- Profit; you know how much money you’ve made – there may be tax implications on this that you can plan for, and/or you’ll know what you can reinvest for the future of the business
- Cash flow; you’ll know what your cash in and outflows are, which will allow you to plan future cash flows more easily
- Decisions; you’ll have the right information about the business’s performance to make decisions, such as resource and investment opportunities, or if you need financing support – and you’ll have the information needed to get that financing support.
- Planning; you’ll have the information you need in order to plan for the future, and for sustainable growth – without accurate financial information you’re operating in the dark
If you need help getting the finances right in your business get in touch, our Outsourced Accounting Support can help – we’ll stay on top of your finances for you, so you can focus on running your business.
Book a free Discovery Call if you want to find out more.