Why 45% of Businesses Fail Within 5 Years

Posted on 16th June 2023

Did you know that as many as 45% of businesses fail within the first 5 years? This is a worrying statistic for entrepreneurs and you will want to do everything that you can to ensure that you do not make up this statistic when starting a new business. To avoid failing within the first 5 years, it is important to know why so many companies end up folding. Once you know the main reasons, you can take steps to avoid these issues and improve your chances of finding success in the long term.

Lack of Financing

The main reason why start-ups fail is a lack of financing. There are often numerous and large costs involved in setting up the business and it can take years for the company to start turning profit. Therefore, it is important that you secure enough financing for your startup and have enough money to keep the business afloat until it finds its own feet.

This means that you need to calculate your startup and ongoing costs and then make sure that you secure this amount before launching. There are a number of financing options available to you, from bank loans to borrowing from friends or family. Ideally, you’ll want to start with as little as possible but it’s rare for anyone to start a successful business with nothing upfront. Thankfully if neither of these options works for you there are some other ways of getting your hands on cash such as outreaching out to investors and pitching your business yourself or selling possessions you own to help you get going. This could be downgrading to a smaller car or even considering equity release. Equity release allows you to free up money tied up in your home that could then be used to build a business from the ground up.

Bad Location

Another reason why so many businesses fold in the first few years is setting up in a bad location. You could have a fantastic business idea and a USP that will help you to stand out, but if you are not in the right area, you will never succeed. This is why it is so important to carry out market research before building the business. Market research will help you to determine the level of competition in the area. If you open somewhere with a lot of competition and established companies, it could be hard to attract customers.

Insufficient Demand

Leading on from this, you also need to make sure that there is actually demand for the products/services that you plan on providing in the area where you are opening up. You should look into the demographics of the area to see if your business has a chance of finding success. If there is demand in the area, you need to make sure that you have a USP and know how to get your business noticed so that you can start attracting customers from the start.

These are 3 of the main reasons why almost half of all start-ups fail within 5 years. Hopefully, the information in this post will help you to avoid becoming part of this statistic and help you to go on to achieve success with your business venture in the long term.