Common Reasons Why Small Business Startups Face a High-Risk Failure

“My business faces a crisis as debts escalate uncontrollably, and I lack sufficient cash to meet timely payments. I’ve come across information suggesting that many small business startups encounter issues akin to mine, but what is the reason?”

This worry is prevalent among the directors, managers, and owners of small business startups in the UK, and rightfully so – approximately two-thirds of startups fail within their initial three years of operation. Typically, failure arises from a combination of factors that synergistically hinder business advancement. 

Here are the four most prevalent reasons why small business startups struggle:

1. Inadequate Preparation

Launching a thriving startup revolves around meticulous planning – scrutinising your market conditions and competition. 

Here are some key aspects you must be aware of and plan for:

  • Identifying your product/service’s target audience
  • Assessing the number of companies offering similar services
  • Establishing the reasons your company’s offerings will stand out
  • Determining the pricing strategies of your competitors
  • Calculating the initial costs to kickstart the business and initiate an advertising campaign
  • Estimating the ongoing operational expenses for the business


2. Lack of Help or Too Much Help

Running a startup solo can lead to trouble. Unexpected events occur, and without anyone else to rely on, getting stuck in situations that lead to missed deadlines and dissatisfied clients becomes more likely.

At a minimum, having a professional accountant available and/or a general assistant for routine tasks allows you to concentrate on the business. However, hiring too many employees too soon can strain your cash flow and impede your company’s ability to invest and advance.


3. Borrowing Too Much Money From the Start 

Many startup founders are overly enthusiastic and, consequently, tend to overstate their funding requirements. The allure of securing a £50,000 business loan is enticing, but realistically, the profitability of your company is still uncertain.

Borrow only what is necessary to commence operations, and avoid borrowing more than you can realistically repay if the business faces failure. If you’ve recognised an excess of debt obligations, exploring debt consolidation or a Company Voluntary Arrangement (CVA) could be viable solutions.

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4. Inexperienced Founders

Unless you’ve actually established and overseen a business previously, you can’t grasp the pressure and responsibility that come with it on an ongoing basis. When you reflect on it, the entire venture is a learning process, as practically everything you undertake is a new encounter. Hence, there’s a significantly higher likelihood of making mistakes that could lead to the company’s long-term failure.

If you sense an inability to recover from the current debt situation but wish to salvage some of the company’s assets before dissolution, it might be prudent to engage a licensed insolvency practitioner (IP) to facilitate a pre-pack administration sale.

If your startup is falling short of your expectations, numerous recovery options exist to place you among the one-third who succeed. Reach out to us at 0121 769 1915 or send an email detailing your situation. With our training and certification in business rescue, there’s no problem we can’t assist in fixing.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.