Tips to Avoid Your Business Failing in Its First Year

Did you know that 7 out of ten companies fail in the first year? This is a significant number and alarming to know that so many people do not make it by week 52. Why is this and what measures can be put in place to avoid this from happening? There will be many different factors that affect this which will include the industry in which the company is in, country that it operates in, the state the economy but also the planning and financial spending that the company makes. No-one sets out to fail when they are opening a company and the biggest tip of all is to prepare effectively before jumping into it.

Market Research

People may see a specific niche in a market and as a result jump onto it. There may well be a niche in a market, however, if you do not do your market research effectively then you could be setting yourself up for an immediate failure. There are things that you can do to minimize this risk which include basic research online, the demographics of the area, the potential demand but also the potential competition that you may have.

An example of this could be a restaurant. There may not be an Italian restaurant in a specific area in town and as a result, you may automatically jump to the conclusion that there is a gap in the market, and one should be in place in this area. However, there are things straight away that could make this fail. What if the area demographics are not interested in Italian food? What if the area is of a poverty level where people normally cannot afford to go to restaurants and what if there are some other thriving restaurants of different cuisines in the area which means people are not interested in going anywhere else? Without taking all of this into consideration in advance, the company could be setting itself up for an immediate failure.


It sometimes takes a lot of money to get a company off the ground and money required to be put aside for things such as advertising, premises, payroll and taxes. Inexperienced business owners may not fully appreciate the extent of all of this and as a result they could underestimate the outgoing costs or even forget about some of them which can be very dangerous. Starting up a company in terms of money (get the paperwork through) isn’t the costly bit – this can be done without much expenditure.

One of the big expenditures that people forget about is the outgoing costs regarding energy. Depending on the building size and the people within it, this could be significant. There are ways to try and offset this which include installing things such as solar panels. Solar Panel costs in Ontario, for example, won’t be high and there will be a great demand from consumers on this product as there is good daylight a lot of the year round. This provider may also be able to help with the installation and overall project plan to ensure that it is fitted and maintained as hassle free as possible. The initial costs of the solar panel installation Ontario may sound alarming but if this is budgeted in your initial business set-up costs then you can then see a massive reduction in the costs of the energy bills monthly or annually. Solar power in Ontario continues to be on the upward trend as people are now beginning to see the benefits – this is not only in costs but in terms of the impact on the environment. Customers and consumers are taking the environmental impact into consideration more and more as global warming is having an effect on our planet.

Another financial blunder is the cost of property and rent. People sometimes budget just solely for the rent but what happens when something goes wrong and the property may need repaired?

What about the insurance associated with this and what about some of the utilities connected to this like telephone, internet etc. Some areas may also include property tax. It is essential that you speak all this through in advance with the property owners or sellers so that you understand what the additional potential outgoings may be in this regard.

Getting a large cash sum at the start of the company is also something that needs to be thought through very carefully. In today’s world, it is not too hard to get a sum of money from a lender (such as a bank) if you have credible credit history and some sort of evidence to the lender that you are not a risk. This may even mean that you need to get someone else to “guarantor” you so that if payments are missed, they are accepting the risk and will make the payments.

If you do opt to get money then the immediate challenge is all around, how will you spend this money (invest in the company and get a return for investment) and how will you pay the money back. It is in your own interest to have as little debt as possible but that is easier said than done (even the largest of companies usually have a degree of debt). This will mean that you will want to get good payment terms with the littlest of interest. Don’t over stretch this though by agreeing a shorter term of length for the loan (which means higher payments) without the capability of being able to pay the monthly amount. Defaulting on the payments can have a drastic effect on your business credit rating and ability to then get cash later. Think this all through very carefully and strike the right balance.

In terms of the finances, it may be better to put some money aside and get some really good advice from an accountant. This may seem an expensive offset at the beginning, however, these people are experts in the industry and will not only help you cover all bases but could give you coaching and advice on how to reduce outgoing payments such as tax efficiency.


It is important to get people employed as soon as there is a requirement but there are many risks around this. If you employ people too late then they may have missed out in some vital training. If these people are then doing important tasks or exposed to a customer, this could then influence the task being completed correctly or even competently. Recruitment is not always successful either so make sure you plan around this as you do not want to take the first people you interview in order just to fill a vacancy – it must be the correct people!

When people are then in the company this can be difficult to gel and understand each other’s scope. As with any new start company, there will be some teething issues around this and maybe even some conflict. It is important to understand this and get this right or you could have a high turnover of staff where people are effectively leaving the company and going elsewhere. This is something that could affect the morale and effectively the company stability. Make sure training plans, employee expectations and salary / compensation are all agreed well before an employee steps foot through the door.


This is dependent on what the company is set up to do but the location is quite important. This is not only for customers but also the employees. For example, if you have an internet-run business where customers won’t really be expected to come to your premises, you may then automatically assume that you can get a property anywhere – which could then mean you have reduced costs in rent. This may not be the case though as you could save on property rent but pay out in other means as you may struggle to recruit talent into this area. For example, if this is an isolated area where people struggle to commute to, there may not be an influx of people wanting to work in this location and to attract talent, you may then need to increase the salary and incentives to make the role more attractive. On the other hand, the location may be in the centre of a city where there are lots of people with the skillset to join the company, but this could mean paying a lot more money on the rent which needs to be considered. There is a balance here somewhere but ultimately all comes back down to the planning and execution.


It is important that people know about your business as this will attract customers. Cash will need to be put aside for this.

There are several ways to do this that include:

· Website – Make sure that your company has a good, well-designed, user-friendly website. It is very common for people to make this their first point of contact with your company and if this is not completed professionally then you may find that they will stop at this point and not come back. In order to get yourself ranked up the Google list, be sure to invest in good quality SEO. Getting this wrong and inputting poor quality content will then impact the Google rankings. Have a think about testimonials on this page – if people like your company then get them to leave reviews to give positive feedback.

· Social Media – Another good way to get your company heard is via the power of social media -specifically Facebook. There is hardly anyone nowadays in the developed parts of the world that do not use this social media app daily.

· Word of Mouth – Probably one of the most powerful ways for people to know about your business is via word of mouth. Encourage people that think highly of your business to tell their friends or even leave reviews on sites such as Trip Advisor.

· TV / Radio – You may even want to budget for TV or radio advertisements – these are extremely costly but could be high impact.

Again, this all depends on your industry type and amount of cash put aside for this, however, could be the barrier between succeeding and failing on your first year.

Customer Focus

A big mistake for start-up businesses is that they don’t always take the voice of the customer into account (or as much as they should). Customer is King and yes, you are always going to get difficult customers but at the end of the day, these are the people that are ultimately paying for the product or service and as such are the ones that will make your business succeed or fail. Some business owners believe in their product or service too much that they think they know best and an element of complacency can become apparent – clearly this needs to be avoided.

It is good to get customer feedback (good or bad) so you can take this into account into shaping your business. This is even more important in the first year or two. There are many ways you can do this. First, you can ask them. Seems simple but it is effective – why not ask them directly for some honest feedback by speaking to them. Alternatively, you can do things such as survey monkeys to be mailed out to them or even post out a survey in the post. You can offer the customers some incentive for them to do this which can include discounts on the next order. Once all the feedback has been received, it is then important to collect this, review it and make changes. You want your customers not to be a “one off” but be loyal. It is amazing the number of repeat customers that come back to the business which are the ones that make it succeed. Focus and reward loyalty.

Make sure to follow all of these tips if you want to avoid your business failing in the first year.

Thanks to Zoe Price

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