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Whether you’re starting a new business, or have been at it for years, the thought of failure probably isn’t something that you want to think about. Business failure is much more common in the first few years of business, and there are a number of reasons why a business might fall flat on its face before it even has a chance to get going.

A significant percentage of new businesses do fail, and opinions about what a business owner should and shouldn’t do are varied. There are however, a few key factors that should be considered to give your business any chance of success.

Here we’ll look at the main financial reason why a business might fail, and what can be done to prevent it.

Many businesses fail due to a lack of funds

According to Business Know How, a common fatal mistake for many businesses is having insufficient operating funds. Business owners underestimate how much money they’ll need and they’re forced to close before they’ve even had a fair chance of succeeding. They also may have an unrealistic expectation of incoming revenues from sales.

It’s crucial to work out how much money your business will need – not only the costs of getting started, but also the costs of staying in business. Many businesses take a year or two to get going, at least. This means you’ll need enough funds to cover all costs until sales and cash flow can eventually pay for these costs.

As soon as you’ve got minimal capital and a struggling business, you’re really not in a good position to ask for another loan.

How can you prevent this scenario?

Be realistic at the beginning, and start with enough money that will last you to the point where your business is up and running, and cash is actually flowing in. Trying to stretch your finances at the beginning may mean that your business never gets off the ground, and you’ll still have a lot of cash to repay.

Despite knowing about the importance of strong cash flow, many small businesses don’t know what their options are for alternative sources of finance. Around a third of all Small to Medium Enterprises (SMEs) don’t know that alternative funding even exists, let alone what’s involved or how to go about accessing it. The majority of business owners prefer to deal with a bank, simply because this is a source of borrowing that they are familiar with. A lack of information about the alternative options makes them wary.

At Commission Flow, we find that those who go ahead with alternative funding methods such as advance commissions say that it’s easier, more flexible and provides better rates than traditional bank loans.

Planning your business and making sure you have enough funds to support you from the start is essential for a successful business. If you’re starting a new business venture or need some additional funding for an established business, why not talk to us about your options.

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