Blog: Start-up success – how to avoid 8 of the biggest risks for start-ups3 November 2023
We’re sharing information from the British Business Bank as part of Business Finance Week which takes place all next week (6 to 10 November).
In this post, they look at some of the key pitfalls to avoid when starting a new business.
Starting a new business isn’t just about the result – it’s also about the journey of planning, launching and growing your business idea. While day-to-day business activities can be hugely rewarding, it’s worth understanding some of the pitfalls small business owners may face and we’ve set out eight examples of some of the risks start-ups may face. With a bit of planning and a healthy dose of realism about potential business outcomes, you can reduce the risk of your start-up stumbling in its early stages.
It’s easy to get swept up in the demands of starting a business, but launching a new venture comes with potential risks. If ignored, these risks can quickly snowball and potentially affect your business. At best, you’ll end up spending too much time tackling problems that could have been avoided; at worst, your business could struggle to survive. It pays to keep on top of potential risks and get professional business support when needed.
Eight of the biggest risks for start-ups (and how to manage them)
1. Paying tax and VAT bills
It’s easy to overlook important tax obligations when you first start a business, but some deadlines, such as tax payments, need to be put in your calendar. Tax bills and payments, such as VAT, Employer’s National Insurance Contributions and Corporation Tax, may not be due for weeks or months, but it’s essential to keep on top of your business accounts and set aside money to meet your tax liabilities. It’s your responsibility to let HMRC know about the tax you owe and to make payments before any deadlines.
You may wish to seek professional help from an accountant to help keep your business on track or add tax filing and payment dates to your calendar. Regularly log onto your HMRC account to see if your business has outstanding taxes to pay.
2. Keeping tabs on cash flow
Not having enough money to pay bills, such as staff salaries, inventory or supplier invoices, can cause cashflow issues which mean you’re unable to pay bills when they become due. Managing cash flow – the amount of money that flows into and out of your business – is vital for a start-up business, especially when funds are tight.
As cash flow affects the amount of money available to fund the running of your business, it’s essential to take the time to create a cash flow forecast that predicts your sales as well as your profit and loss. You can then accurately forecast money coming in and going out of your business and spot potential cash flow problems before they happen.
Many things can affect a business’s cash flow, such as supply chain disruptions to staff issues, but planning is the key to helping your start-up avoid serious cash problems that could threaten your ability to pay suppliers and employees.
3. Falling foul of the law
There are a lot of legal considerations when launching and running a business, such as choosing the right business structure to adhering to health and safety legislation. You’ll need a working knowledge of the relevant business regulations related to your business when launching and running your start-up.
Consider support from a business lawyer or HR professional to help identify the main legal responsibilities you have. In addition, ensure you have the right business insurance in place, including public liability and employer’s liability, to protect your business in the event of a legal claim.
4. Employing the wrong people
To help your business grow, you’ll need to hire employees with relevant skills and suitable experience, but that can be difficult when finances are tight. Hiring ineffective employees can drain a business, with time spent handling poor staff performance a distraction. Workplace conflict and poor customer service can also threaten the success of your start-up.
Spend time vetting potential employees and conducting thorough interviews with job candidates to understand their skills and experience. Always check references before hiring staff, and use probation periods to ensure an employee is a good fit for your business.
5. Finding and keeping customers
Winning customers is a challenge for any start-up. Attracting loyal customers who keep coming back for your products and services can help grow your business.
The first step towards start-up success is to know your customers – what they want, what they need and how much they are prepared to pay.
To achieve this, you need to research and listen to potential customers, understand what your competitors are not providing in terms of products and customer service. Then, create a marketing plan to promote your business and spend time ensuring you have good customer service policies in place. Act quickly on complaints and use positive reviews and testimonials as endorsements to win new customers.
Consider using a marketing expert to help you effectively invest in the right marketing channel to reach your target customer.
6. Theft and damage
Security around the physical aspects of your business, such as premises and inventory, is vital. Theft – from shoplifting to light-fingered employees – can see your business lose money. Ensure your business premises are protected with a good alarm system, and installing CCTV can help prevent theft. Keep valuables locked away, and remove cash from premises overnight.
Cyber security can also be a significant risk for start-ups. Small businesses can be tempting targets for cyber criminals due to less sophisticated IT security systems. Ensure that sensitive customer data, such as credit card information and passwords, are securely stored and encrypted. Keep software regularly updated and install firewalls and antivirus software to protect sensitive and financial information. If in doubt, hire an IT security expert to check your setup.
7. Burning out
A significant but overlooked risk for a start-up business owner is burnout – a form of exhaustion caused by constantly feeling overworked and swamped with responsibilities. Burnout is especially risky if you’re a sole trader without a partner to share the workload. While it’s natural to worry about how your business is doing, try to avoid it becoming all-consuming, as this can lead to mental and physical stress.
Take time away from work to recharge. Regular physical exercise, maintaining a healthy diet and getting plenty of sleep can help you face the challenges of running your own business. Looking after your own physical and mental wellbeing will pay dividends and allow you to focus more effectively on your start-up during work hours.
8. Unrealistic expectations
Dreaming big is great, but having unrealistic expectations for your business can lead to feelings of frustration, disappointment and the risk of throwing in the towel before your business truly gets off the ground. Managing expectations is vital for sustained growth and navigating the many obstacles you’re likely to face on your journey to success.
While ambition is good, ensure you set realistic goals and monitor your progress. Recognise that building a successful business can take time, but with careful planning and realistic expectations, your start-up may have a greater chance of success.