Approximately 50% small businesses will go out of business within three years of opening their doors. Looking ahead, only one-third of those business will make it to ten years.

It’s no secret that running a Raleigh business is challenging, but looking at these failure rates as a young business can be daunting.

So why do these start-ups fail?

1. They Don’t Understand Their Market
Creating a business plan and performing market research is a vital part of a successful start-up. Without this information, businesses are essentially just “winging it” with new products, services, or brands. They are taking a risky gamble on their new venture. By performing strategic research, businesses can mitigate risk and enter a new market with confidence.

2. They Don’t Understand Cash Flow
Some businesses start out very successful, on the surface. They have substantial revenue coming in, and their expenses appear to be low. However, because they’ve mismanaged their accounting, they are unable to pay their bills when due. This can damage credit, reputations with vendors, and even keep businesses from making payroll. By creating a cash flow budget, businesses can account for every dollar when it is actually going to be available in the account and pay bills accordingly.

3. They Don’t Use Founder’s Agreements
Partnerships can be an effective business foundation. However, just like any relationship, things can go south quickly. From minor disputes, to major issues like spending from the business account and proprietary information, it can contribute to the downfall of a small business. By establishing ground rules when everyone is getting along, you can prevent legal questions and risk should the relationship become rocky or end suddenly.

4. Lack of Marketing & Sales Skills
Regardless of your industry or business model, you have to reach prospective customers and be able to “close the deal” in order to be sustainable. Many small businesses are started by highly skilled professionals with a technical background. While they may be able to perform the actual work, they are ill equipped to gain a following. By partnering with someone who has sales, marketing and business savvy, business owners can focus on their strengths. Alternatively, hiring a consultant or employee who can manage that aspect of the business can be the best option in some cases.

5. They Don’t Manage Employees Well
Spending the money to hire the first employee is a big step for a small business. Some businesses jump into this phase too soon, and some wait too long. Training issues, job descriptions, and turnover can contribute to the downfall of a young business. Before you hire your employees, establish what they will do, how you will train them, and how you will keep them engaged. By planning ahead, you can save yourself costly mistakes in the realm of human resources.