Half of all startups go out of business in the first year. A further 95 percent fail in the long run. It’s a big problem, especially for those who pour their lives into their companies. But all too often it ends with liquidation and the company going out of business.

Today, we’re interested in how businesses get to such an unenviable position. Here are some of the pitfalls and why small businesses fail.

Over Expansion

Most businesses believe that more business is always better. After all, more business leads to higher revenues, and sometimes more profit. But companies need to be cautious when expanding. It’s all too easy to grow rapidly without having the right systems in place. If the proper systems are not in place, customers can become disgruntled. And when customers become disgruntled, the business starts to get a bad reputation.

Too many small businesses have fallen foul of this sequence of events. They expanded too rapidly, weren’t prepared, and then went out of business. The trick is to expand only as far as your systems will allow. It doesn’t necessarily mean that you have to expand slowly. It just means that you have to be able to process all of your customers and give them a great experience. Some companies will find this easier to do than others.

A Bad Location

Despite the rise of the internet, there are still a lot of businesses out there who operate in the real world. Think corner shops and factories. And they rely, just as they always did, on having a great location. But too many startups underestimate the importance of location. They choose to rent space well off the beaten track because the rents are lower. It’s this type of cost cutting can spell disaster.

First of all, companies often end up a long way from their customers. Second, they often don’t have great parking or great lighting outside their premises. And third, their businesses are a long way from their competitors. (Which is bad news if you’re trying to attract new interest in your business).

Too Little Capital

Most businesses need some form of capital to begin operations. But most startups dramatically underestimate the costs of business. And this can lead to big problems in the long run.

Companies with too little capital find that they run out of money to pay the bills. Often the business is viable, in the sense that there are enough sales. But the costs of making those sales are too high in the short term. Usually, this means that the only option is liquidation. What is liquidation? It’s where the finances of a company are wound up and any leftover money given back to creditors. And, clearly, that spells the end of the business.

Have The Wrong Motivations

A lot of people start their own businesses because they think they’ll have more money and more time. But this isn’t how it works. Business owners don’t often make a lot of money - at least to begin with. And they don’t have more time to spend with friends and family. If anything, they have less time and have to work evenings and weekends.