How to Avoid Business Failure
When you start your own business, it’s impossible not to wonder, ‘what if I fail?’. While many contractors and freelancers have started very successful businesses, many others have failed in their quest to become self-employed.
But why do businesses fail? Gorilla Accounting have been providing accounting for contractors for many years and have seen it all, so we’re taking a look at the reasons behind this failure and how individuals can avoid them.
Not Doing Enough Research Beforehand
Before you set up your own business, whether as a sole trader or director of a limited company, you need to do your research – and create a business plan.
Researching the market will allow you to understand your target audience better and to ensure that your products or services will meet their needs. Not only this, but you also need to gain insights on your competitors, especially their strengths and weaknesses. Identify potential threats to your business, as well as opportunities, before embarking on your self-employed journey.
Being absolutely clear of your target market is essential. While many self-employed individuals want to market to everyone, as they believe everyone is a potential customer, the truth is that you have to identify who your clients are and direct your efforts towards them – otherwise, you risk being too generic and attracting no one.
When researching the market, ask yourself questions such as the following:
- Who are my main competitors?
- What is my product’s USP?
- What does my target customer look like?
- How do customers interact with products and services?
- Will I be adding something new?
- What are the average rates?
Poor planning is the quickest way to fail as well, so you should always have a business plan that will help you see everything with more clarity. Business plans are also essential to attract potential investors and partners.
Letting Self-Doubt Win
Overconfidence can be a killer but so can self-doubt.
Many contractors and freelancers let self-doubt creep in and don’t believe in themselves – and their business – as much as they should. But, if you don’t believe you can succeed, who will? Confidence and determination are key elements in successful businesses and companies, as they allow you to take action instead of becoming paralysed by fear and doubt.
Many contractors and freelancers don’t even realise that they doubt themselves, as this attitude can manifest in several different ways. For example, it leads to people wondering, ‘what if my idea fails?’, ‘what if I can’t find good employees?’ or ‘this is a difficult market, what If I can’t break into it?’.
It’s important to understand the destructive nature of self-doubt and realise that, even if something goes wrong, you can overcome challenges and obstacles thrown your way. To combat self-doubt and prevent fear from taking over, also try to find your business’ weak points. This may seem counterproductive, but by doing it, you can more easily adapt and revise your business to prepare for any eventuality, which should help to put your mind at ease that you’ve thought of everything.
Not Listening to Customers
Another reason why many businesses fail and companies fold is not listening to customers’ input or feedback. You’ll need to give your clients an easy way to interact with you so that you can gather feedback on products, prices, practices, and more – whether or not most of your marketing is online, social media allows for immediate communication with your customers, so you should take it into consideration.
From asking questions on your social media channels to setting up ‘chat’ features on your website where you can quickly answer your client’s most pressing questions, there are many ways to interact with your audience. You can impress them with your helpful replies and with how well you take their feedback on board.
Take the opportunity to ask them what they think about your products and pricing, as well as what you could do better. Most importantly, listen to what they have to say – you don’t have to implement all suggestions, of course, but if your clients are raising relevant points, it’s worth it to, at least, ponder them.
Not Continuously Updating Skills
As a freelancer or contractor, expanding your skillset is crucial. If you stagnate instead of learning new things, you may find yourself falling behind. So, not only do you need to keep developing your existing skills to ensure you’re the best at what you do, but you should also work tirelessly to learn new ones, as this will allow you to offer a wider range of products and services to your customers.
Additionally, if you’re looking to expand your company and hire employees, for example, you will need to develop your leadership skills – many businesses fail due to lack of proper leadership, so skills such as these are key to your success.
Industries and markets don’t stay the same either. In order to keep up with your ever-evolving sector, you need to stay up to date with the latest changes and news.
Giving Up Easily
Businesses evolve over time as well so you may have to be flexible and to consider options you may not have thought about before. For example, after all your research and the effort you put into your business, you may find yourself going in a completely different direction, which doesn’t have to be a bad thing.
Many businesses started out as something else and have enjoyed huge success. For example, Colgate started out as a soap and candle maker, and only started selling toothpaste in 1873. Nokia began life as a paper mill and even Google was just a search engine when it was founded.
Many contractors and freelancers, however, when faced with a changing industry or business, choose to give up instead of adapting. This is a big reason why businesses and companies fail before they’ve had the chance to succeed.
Not Marketing Online
Nowadays, you need an online presence, even if it’s just a website with details of your products or services. After all, the internet is not just a passing fad so, in this day and age, failing to take into account online marketing can be a point of failure for many businesses.
You’re not selling as much as you could if you’re focusing only on traditional forms of marketing, like TV or newspaper ads. A reported 80% of internet users have made purchases online and many even research products on the internet before buying them in a shop.
For your business to grow, it needs to be visible to consumers as they search online, which means you need to consider social media marketing, press releases and SEO work, just to mention a few.
Once your business starts to take off, expanding it is the next logical step. However, expanding too quickly may have the opposite effect of what you want – after all, this can mean taking on loans or hiring more employees, which can quickly drain your capital.
You don’t have to accept every contract or gig that comes your way, especially if you know it will overwhelm you and it’s not the right moment to expand. Slow and steady beats too quick and unmanageable.
However, a good balance needs to be reached, as you don’t want to suppress growth either. How do you know you’re ready to expand? When you have a solid client base and good, consistent cash flow, you can start to think about growth and how you can go about achieving it at a measured pace. Also, if you can’t fulfil your customers’ needs or keep up with production, review your business to see if expansion is warranted.
Reduced Number of Sales (or Lack Thereof)
Being unable to reach your sales goals is also detrimental to your business – and a major cause of failure in general. If you rely too much on just one client, for example, or if you haven’t taken the time to market your business, you may struggle.
Diversification is a good way to create a more consistent cash flow, as is working with several clients at once. Make sure that you’re delivering value to your customers at all times as well (and ensure you’re targeting the right target audience in the first place). For many businesses, the problem lies in a lack of ability to compete with other companies, so you’ll want to do your homework and provide a unique value proposition when selling your products and services.
Not Setting the Right Prices
Rates are a key component of success in the freelancing and contracting world, so make sure you are setting the right prices. This can be a challenge, especially for anyone starting out, but incorrect pricing can cause businesses to fail, so it’s important they’re well-thought-out – if your rates are too low, you may not be able to pay your expenses or draw any profit; if they’re too high, you may scare potential clients away.
Negotiate a price with your customer before you begin working and include it on the contract. You may also want to take into account your customer’s budget, the years of experience you already have, the average industry rates and, of course, your living costs.
All this and more will help you to determine how much to charge your clients.
Additionally, accurately estimating a project’s timescale is just as important. If it takes you longer than you expected and you’re charging a flat fee for the whole project, you may be losing money. And, if you agree with a client to deliver the final product within a month but fail due to poor time management, your customer may not want to work with you again. In order to maintain good business relationships and boost your reputation, delivering work on time is vital.
To figure out your hourly or daily rate, do the maths and account for any work-related expenses, holidays you want to take, pension contribution, sick days, and more.
Inadequate Financial Management
Financial mismanagement is often one of the reasons many businesses fail. As contractor accountants, we’re aware of just how difficult it is for contractors and freelancers to focus on their accounts where they’re trying to get their business off the ground or trying to grow their company.
Every business owner has to know every incoming and outgoing and needs to have a contingency plan as well. Being unaware of how to properly manage the cash flow of your business, not keeping track of expenses and not understanding how taxes work can put a strain on your business – and put it on a path to failure.
However, if you don’t have the time to learn how to do all this, you can count on the help of professional accountants. Gorilla Accounting can do it all for you, from incorporating your business to submitting corporate tax. When you become a client, you get access to FreeAgent bookkeeping software, so it’s easier than ever to record all financial transactions, income statements, expenses and invoices. You can even do it on the go and from any device, be it your laptop, mobile phone or tablet.
Gorilla is always on hand to answer any question you may have, so don’t hesitate to get in touch with our expert team and we’ll be happy to discuss your needs with you. In the meantime, check out our contractor tax calculator to figure out your take-home pay.