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Much of the advice you’ll find online about starting a business focuses on ‘building your dream’. The guides tell you all about the excitement of creating your vision, the brand, the freedom of being your own boss and so on. Frankly, that is how it should be. Starting that business you always wanted can be an amazing experience, and with all that energy and vision, how can you fail?
Well, sadly, the reality is often very different. Things get in the way, and there sometimes seems to be an endless parade of rising costs, unexpected setbacks, sleepless nights, and difficult decisions.
The truth is that many businesses fail, not because the idea was poor, but because the approach wasn’t realistic. We believe the first year should be about building a business that lasts as much as it is about the dream. That means you will need to be ready for problems, understand the risks, plan properly, and prepare as much as possible for the unexpected.
Sometimes, unfortunately, businesses do end in insolvency in their first year; alarmingly, though, this is a rising figure, and it looks like it could exceed 10% this year. Yet, when we see businesses on the verge of insolvency, it’s rare that the directors didn’t understand what was needed to run them. It wasn’t bad management; it was just that the reality of being in business sort of ambushed the plans. The road proved rockier than expected in several areas, or a single big unexpected hit tipped things the wrong way, and the business couldn't recover.
So, this article is a bit of a reality check based on our experience as Insolvency Practitioners, mixed with a little bit of the ‘tough to be kind’ approach you may need now and again to make it through your first year.
Running out of money is undoubtedly the number one killer of new businesses. One of the most common issues here isn’t that a business isn’t ‘selling’ enough, it is that cashflow around that is often misunderstood. You can be profitable ‘on paper’ yet still end up insolvent. It happens, not because the sales dry up, but because the money doesn’t come in quickly enough to pay suppliers, staff, or tax bills. Late customer payments, unexpected costs, or over-ambitious spending can tip the balance very easily in the first year.
New owners often underestimate how long it takes for sales to turn into banked cash and just how much (and how often) working capital is needed to bridge that gap. New businesses also tend not to have the financial resilience of a more established one. That is even more dangerous if they have a highly specialised supply chain and customer base. In those circumstances, a single large unpaid invoice or being put on hold with a supplier can destabilise a fledgling business.
Key Point: Build strong financial controls from day one. Monitor cash flow weekly, set aside reserves for lean months, and treat forecasting as a vital business habit that is built into your schedule.
Many businesses begin with an idea that the director(s) are passionate about. You are 100% certain that you have the makings of a great business. You need that confidence to get things moving, but passion and certainty don’t automatically translate into customers or clients. Without a strong value proposition for your product or services, and enough people willing to pay for them, a business will fail very quickly.
Relying on advice from friends and family may not always get you a true assessment of your offering. Similarly, no matter how good it is, assuming a product will naturally just 'sell itself' is a dangerous strategy. History is littered with failed ‘great products’ that nobody wanted. The reality is that markets are competitive, customers have choices, and the likelihood is that you’ll struggle to win them over. That challenge grows if you have a product or service that is the answer to a problem nobody has or cares about, if they do.
Key Point: Test before you launch… then test again. Speak to potential buyers, real ones, not your nice Uncle Steve, he wants to encourage you, you need challenging. Validate your idea and ensure there is a market demand. Then, adjust your product or service based on real feedback. Your assumptions can be the most dangerous trap when creating a product or service.
Starting a business often means stepping into roles you’ve never done before. You may need to be a finance manager, salesperson, HR, marketer, administrator, and several other roles, in the space of a single day. Without the right knowledge, it’s easy to make costly mistakes. Many business leaders who survive their first year will point to knowing their limitations as well as their strengths as one of the main reasons they survived. They had confidence in the business, but not to the point where they allowed themselves to make mistakes. When they did make them, though, they learned from them.
In short, confidence can kill your business if it is misplaced.
Failing to delegate, not understanding your own limitations, not budgeting for a professional and thinking a quick ‘Google it’ will do when you lack knowledge, is just bad management. Sorry, to be blunt, but you aren’t the superhuman you maybe thought you were. Some business owners refuse to get outside help, convinced they can (or must) do everything themselves. Others simply burn out from trying to juggle too many responsibilities.
Key Point: Recognise your limits and don’t be afraid to ask for help. Build a support network of advisers, mentors, or outsourced professionals who can fill gaps in your skills and experience.
Beyond the well-known risks, there are hidden threats that catch many new business owners off guard. These “business killers” rarely make it into glossy start-up guides, but can take down a company practically overnight if you’re unprepared, and we see that happen a lot. Here are just a few:
Supply chain shocks – What if your main supplier raises prices, goes bust, or can’t deliver?
Cybercrime – SMEs are now the biggest target for online fraud, phishing, and ransomware. Could your business survive an attack?
Health and wellbeing – If you fall ill, is there anyone to keep the business running? Burnout and stress are also silent risks for founders.
Premises issues – Fire, flood, or structural failure can stop trade instantly if you rely on physical space.
Finance that kills, not saves – We regularly see businesses that take additional finance just to stay in business or go big on borrowing to start up, only to have it come back to hamstring them later.
While you can't necessarily predict the unexpected events you can at least be aware that they could happen. Awareness of that should lead to some plans for resilience if you are facing a sudden challenge.
Key Point: Resilience planning is just as important as sales and marketing. Identify your weak spots, put contingencies in place, and ask yourself honestly and critically: “If circumstances changed in the first year, could my business survive?”
Sorry if this article has been a little blunt at times, but surviving your first year in business often takes more than you may think. As well as the dream, it requires financial discipline, customer focus, strategic planning, self-awareness, adaptability, and a level of resilience way beyond anything you put in the business plan. Get this right, and your business stands a far stronger chance of thriving beyond those first 12 months.
Being in business is tough at times, and we’re committed to helping new business owners understand the risks and build stronger, more resilient companies. That way, even if the worst does happen at some point, you will be in a better position to deal with it. So, over the coming weeks, we are going to put in place a series of helpful guides and advice specifically intended for new businesses.