Telling the truth about SME life today

The three-year glitch: Why getting it right early is the key to success

The truth is that there is no guarantee that your business will survive even if you have a great idea for a business and your product or service is well received. The sad fact is that good businesses fail every day and many in their first three years. Why

Because, as mundane as it sounds, entrepreneurs often fail to get the basics right and put their livelihoods at risk as a result.

In my experience, entrepreneurs are always strong on ideas. They work hard to make their dreams a reality, but sometimes they forget that simple numbers can be the difference between success and failure. Too many lay weak foundations and see the house fall down around them.

Money is the lifeblood of any business. They say cash is king” and they are half right, but there is more to business survival than just having money. It’s what you do with it that counts: I say cash care is the real king.

Poor financial management is the number one reason that so many businesses fail within three years of launch and the fact is that new business owners need to get organised to improve their chances of success.

Today, at MADE: The Entrepreneur Festival, we will launch a new report called The Three-Year Glitch which provides an insight into some of the problems that new start-ups face in the UK and the steps early-stage business owners need to address to improve their chances of surviving past their first three years.

We polled 500 small business owners and sole traders from across the UK, all of whom have been in business five years or less, asking them for their thoughts on the challenges they’ve faced in starting up a business. We also conducted interviews with a number of entrepreneurs who shared their advice on how to do it right, and what they had got wrong.

The research points to some of the reasons why so many new businesses fail in their first three years.

A total of 64 per cent of the businesses polled started with less than £5,000 and 44 per cent had either run out of cash or come very close since launch. With such narrow margins for error, the results provide a salutary reminder that cash flow, or more precisely the lack of it, is still one of the number one killers of new businesses.

The research also points to a certain amount of denial. While 33 per cent admitted they would learn from their mistakes and do things differently if given their time again, 60 per cent would do exactly the same again.

The reality is that small businesses with fewer than 50 employees are the lifeblood of the UK economy. They account for 99.2 per cent of the U.K. s total stock of companies, 47.1 per cent of private sector employment (10.6 million people) and account for 35 per cent of private sector turnover, so it’s critical that that they get all the help and support they can to survive and thrive.

For many, the cut and thrust of being an entrepreneur is a tantalising prospect. Most of us think our brilliant idea couldn?t possibly fail. Why spend time on a barrage of form filling and data crunching when you can plough straight ahead and start making millions

The problem is that too many do fail and the statistics speak for themselves. As more people start, more also become exposed to the risk of failure and the majority of those that fail made a mistake somewhere down the line one that they could point their finger at and say, ?that was why. One, typically, that disrupted money flowing through the business.

The goal, not least for those involved in launching these businesses, is that more of them survive and grow and in many cases, it is a question of learning some hard truths early and getting the basics right in the very beginning.

Those startups that want to wait until they are big and successful to put the right systems and processes in place are doomed never to get there.

Pernille Bruun-Jensen is managing director of Intuit UK.

Download a copy of the Three-Year Glitch Report below.

Download the report here

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