Getting a business off the ground can be difficult, but keeping one running profitably can, at times, feel like an impossible task. Half of all UK start-ups fail in their first five years, and the reason for this failure is usually financial. Passion for your work is important, but when crucial financial targets begin to fall by the wayside, businesses can begin a slow but inevitable downfall.


It is important to learn from our mistakes, but thankfully this isn’t always necessary; sometimes we can learn from someone else’s. These are the five biggest reasons why small businesses fail to realise their potential or die out completely.

1)      You are pricing your products or services too low

Pricing correctly has a massive impact on your business sales and the overall health of your company. Pricing a product or service far too high will undoubtedly result in fewer sales, but by lowball prices are just as hazardous. According to analyst firm McKinsey, retailers are much more likely to underprice rather than overprice. The reality is, it is better to sell fewer units at higher prices than more units at lower prices. When pricing, you need to consider overheads and fixed costs. Higher prices will protect your margins as well as enhancing your brand.

It may be tempting to offer low prices in the early days of your business, but as Brian Hamilton, CEO of Sageworks, points out, this is a myopic stance. As your operating costs grow, your costs will have to increase to reflect them, and this will ultimately displease your customers or

2)      You’re not chasing payments

As the old adage goes, “cash is king”, and the promise of money doesn’t amount to anything by itself; we need this promise to materialise into actual payment. Sending out an invoice does not conclude your job in so far as payment chasing. In order to keep your business running smoothly and avoid debt, you must ensure prompt payment. The frustrating issue of late payment is one of the biggest problems faced by small businesses and many fold due to the customer or client dragging their heels. According to a recent finance survey, 23% of the individuals questioned reported an increase in late payment over the past year.

3)      You’re not producing and reviewing regular financial reports

Many small business owners tend to avoid the ‘numbers’ side of the business whenever possible. This is deeply concerning, as keeping lax records can have serious legal ramifications come the end of the tax year. This avoidance mentality could not only prompt an HMRC investigation but keeping up-to-date with the day-to-day financial running of the business will ensure that you have all the pertinent data to make the right choices going forward.

4)      You confuse your profit with your cash flow

Money flowing into the business doesn’t necessarily correlate to a high profit. You may be bringing in a lot of money while technically running at a loss, which will run your business into the ground in no time. Consider all the bills that must be paid, such as overhead and salary. This is why it is so necessary to appropriately price your products or services. Believing that you are more profitable than you are, and not being up-to-date with the realities of your business’ financial situation could lead to careless decisions that could ultimately result in bankruptcy.

5)      You are borrowing too much money

Before deciding whether or not to take a loan that is offered to your business, carefully deliberate over whether or not the loan is strictly necessary. Loans, and the accompanying interest rates, can place a huge burden on a small business that can be hard to recover from.

About the author:

Yaakov Smith, a first class honours graduate of Oxford University, has almost twenty years’ experience developing and designing software.  He is the CEO of Logican Solutions, a UK-based business management software company that serves to streamline processes and increase productivity. They offer a range of products, including solutions for claims management, debt management, and property portfolio management.