There is as much to be learned from failures as there is from success. Find out the most common reasons why B2B startups might fail during the first five years.

10 Areas Where Incompetence and Inexperience Can Cause B2B Startups to Fail

From cash flow to customer terms, unless you’ve run a business before, what you don’t know might hurt your new business. Find out how to protect and strengthen your startup or young business by shoring up knowledge and expertise in these ten areas that account for 75 percent of all young business startup failures.

Unless you have launched a startup or small business of your own, it is hard to describe the feeling of excitement and limitless opportunities that startup owners experience when they first open their doors (whether brick and mortar or virtual.) Equally difficult to describe is the vast disappointment that same small business owner will experience if they are forced to close those doors permanently within a few years (or even months) because their young business is no longer viable.

As alarming as it sounds to say that half of all startups are no longer in business by the five-year mark, it’s not like the five-year mark is magic. In fact, more than seven out of every ten startups will fail within the first ten years. (statisticbrain.com)

The industries with the highest failure rates by year four (when 50 percent of all new young business startups are said to have failed) include:

• Information – only 37% still in business after 4 years
• Transportation / Communication / Utilities – only 45% are still in business after 4 years
• Retail – only 47% are still in business after 4 years
• Construction – only 47% are still in business after 4 years
• Manufacturing – only 49% are still in business after 4 years

On the flip side, the industries which have the higher success rates by year four are listed as follows:

• 58% of Finance / Insurance / Real Estate organizations are still operating after year 4
• 56% of Education / Health organizations are still operating after year 4
• 56% of Agriculture organizations are still operating after year 4
• 55% of Services organizations are still operating after year 4
• 54% of Wholesale organizations are still operating after year 4

From Startup to Young Business to Out of Business, Top 10 Reasons B2B Startups Might Fail

Statisticbrain.com listed the top ten reasons that a young business might fail under two main categories: incompetence and inexperience. One could make the argument that incompetence occurs largely due to inexperience or lack of knowledge needed to put the right policies into place; but for now let’s stick with their categories and talk a little bit about the most common reasons that startups tend to fail within the first five years.

Top 10 Reasons Startups Fail

Incompetence accounts for 46 percent of small business failures within the first ten years of operation. The specific areas of incompetence that derailed these startups included:

• emotional pricing
• living too large
• not paying taxes
• no understanding of pricing
• lack of planning
• no understanding of financing
• no experience in record-keeping

As you read through the list, it’s easy to conclude that many of these small business failures could have been prevented if the entrepreneurs had educated themselves in the areas of finance, taxes, record keeping and pricing. What’s more, the problems that result in all seven of these areas directly affect cash flow, which is the lifeblood of any business, of any size.

Inexperience accounts for 30 percent of small business failures occurring within the first ten years of operation. The three specific areas where lack of knowledge and experience resulted in startup failure were:

• poor credit granting practices (lack of experience in setting the right customer terms)
• expanding too fast
• inadequate borrowing

Even more than the previous reasons cited for startup failure within the first decade, these three reasons point back to an inadequate understanding of cash flow management, which, in turn, is just about certain to result in inadequate cash flow needed to sustain a small business.

Cash flow is simply the movement of money into and out of your business. Positive cash flow results when revenues exceed expenses; conversely, negative cash flow occurs when money is going out of a business more rapidly than revenue is coming in. Inc.com lists five ways to improve cash flow (collecting receivables, tightening credit requirements, increasing sales, discounting for early payment and obtaining financing).

However, it’s not always possible to implement some of these suggestions. For instance, if extended customer credit terms are being employed as a competitive advantage, it may not be possible – or even advisable – to demand that customers pay up more quickly.

How to Speed Up B2B Business Cash Flow

Any of the reasons cited for the demise of 76 percent of the small businesses that failed in their first ten years could have been experienced by any type of B2B (business to business) organization. Though some could have been prevented by entrepreneurs educating themselves or working with experts in the areas of planning, financing, record keeping, taxes, etc., some of the problems are more complex.

For instance, a small business might want to require customer payment up front or on delivery but may need to extend more favorable terms to their customers in order to compete with larger, well-funded competitors. Likewise, some small business owners may have a good handle on financing and record-keeping, but that does not ensure cash flow from customer sales will always match up in a timely manner with operating costs, expenses and payables.

That’s where invoice factoring can help. Invoice factoring is a financing tool most B2B organizations who invoice their customers for payment after delivery of goods or performing of services can use to better manage cash flow. Rather than waiting for their customers to pay, they can factor – or sell – a customer’s invoice to an invoice factoring company like Corsa Finance and get payment for the invoice within days – or even hours.

Factoring invoices allows an organization to gain immediate access to the working capital that might otherwise be locked down in their receivable invoices for weeks (or longer). With immediate payment on invoices, cash flow can be maintained at a more consistent level, and revenue can be matched up more closely with correlating operating expenses.

Speed Up Cash Flow by Factoring Invoices Instead of Chasing Customer Payments

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