In 2025, the success rate for small businesses is not good. Only about 50% of small business in the UK ever make it to year 5.
This is nothing new. In this blog we’ll show you some common financial mistakes small business owners make. Once you know the mistakes, you can make sure your business doesn’t become another statistic and is still thriving five years (and longer) after you started.
Why do so many small businesses fail?
Over the past 18+ years, we’ve worked with thousands of small businesses. In that time, we’ve seen some very common challenges that can silently kill a business, if the owner isn’t aware of them.
What’s more, these ‘silent business killers’ are the kind of challenges that creep up on you, rather than being in your face. So knowing about them early is crucial to survival and sustainable growth.
They don’t just happen at the start of a business either. They can emerge at a mature stage of business as well, with the result is simply that it just takes a little longer before the business fails.
The main reason most small businesses fail
Ultimately small businesses fail because of one simple truth: they run out of money. They can no longer pay their bills and need to close. So let’s look at 5 key issues that can lead to this problem.
Mistake 1: Poor sales and marketing
This is probably the most obvious so let’s get it out the way first:
the business just didn’t sell enough.
Now you might think “This doesn’t sound very ‘silent’ to me”, but it makes the list because so often it becomes *the* deciding factor.
Whether it’s a new start up or you are investing heavily in a new service or product, a lack of visibility can result in it just taking longer for the business to take off than you as the owner thought (or wanted). That longer timescale can then break the business as it runs out of money.
For example, one client took on a proven franchise printing business that had, on paper, everything it needed to be successful. However, it failed because:
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- It just took longer than expected to gain traction in the local area.
- The owner had overcommitted to initial expenses, including rent on a unit and employee’s wages.
To avoid that mistake, you need to plan how your cash might look over time, whether you are starting out, or are slightly more mature and looking to expand.
Creating a simple spreadsheet will do the job; you just need to be realistic. So, whatever timespan you think it might take to get established, extend it! (We might even suggest double it.)
How much time should marketing take me?
Any kind of marketing will take consistent effort and time, and the best time to market is when you don’t have the time. This issue is particularly common in micro businesses of one or two people, where they are too busy doing one client job to market themselves to get the next. The business then finishes that project – and has no work to carry on.
Mistake 2: the business owner draws too much money
This is one of the biggest killers in the slightly more mature business.
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- As your business starts to do well, you pay yourself.
- You then decide to take on extra staff to support growth and perhaps even buy some of your time back.
- However, unless the sales increase accordingly , there isn’t the profit available to continue to pay *you* at the same level as when it was just you.
- Slowly the business is running out of money, but at certain turnover levels this can take time to really see the problem happening.
This is a classic ‘creep’ challenge. Initially you probably have the funds to pay the wages. Then the VAT and/or tax bill comes in, and suddenly there is no money to pay these. This can become a vicious cycle that is hard to get out of.
Why you need to know your numbers
The solution is to regularly review your profit and loss report. You need to check that the profit figure at the bottom, less any repayments or purchases of equipment etc, is at least *equal* to the money you are drawing.
This profit and loss report needs to be accurate at any given point in time, so you also need to ensure that your book-keeping is up to date and accurate for the exercise to be valuable.
This exercise can be a challenge if you need to adjust for unsold stock for example. However, if you do this regularly, it will stand you in good stead for the future.
Keeping track of the numbers
Having some idea of your numbers, even if they are not entirely accurate, is a great place to start. Cloud-based accounting software can help with this by making book-keeping easier, and creating an instant profit and loss statement you can review anytime. At Heelan Associates, our go-to accounting software choice is Xero, as it can scale up as your business grows.
Mistake 3: Making bad decisions with your money
A very common mistake we see, particularly in the early stage of growing a business, is a business owner making bad financial decisions. We saw recently, for example, a brand new start up borrow £25k personally and then spend every penny on sponsoring one trade event. Within six months, the business had run out of money and closed.
In business, you need to make educated decisions based on your numbers. All too often, small business owners don’t make good decisions because they:
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- Use the bank account as the primary finance management system.
- Don’t have any numbers to look at.
- Don’t look at them even if they do have them.
- Don’t know *how* to look at their numbers.
This last point is perhaps the most pertinent. As a business owner, you need to educate yourself in how to read and use your numbers.
Luckily, it’s a skill that can be learnt and again, accounting software or a spreadsheet can help you. Or you can simply use pen and paper. Whatever method you use, be realistic.
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- List your expected income.
- List you expected outgoings.
- Plan for tax and VAT.
We find that when those figures are written down in black and white over a period of time, it makes the picture much clearer, and decision-making becomes more focussed.
Mistake 4: Margin creep
Margin creep can be a slow death for a more mature business. It usually looks like this:
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- There is money coming in, so you think you’re doing OK.
- You’re generally living out of the bank account, but you don’t really know how much money you are making.
- Suddenly tax bills need to be paid late.
- Suppliers can’t be paid on time, and it feels like you’re juggling income and expenditure all the time.
Margin creep happens when your business experiences small but sustained rising costs over months and even years.
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- The price you pay for supplies, raw materials, and rent have therefore increased.
- However, your prices for goods or services don’t reflect that same level of increase, if at all.
Being aware of margin creep is particularly important in 2025 as we’ve seen rising employment costs, and the price of everything in business and in life going up. This can be compounded by the issue that as you grow bigger, you also become inefficient.
The solution is to review your margins and profits regularly, preferably at least every quarter, but certainly annually. Use this review to:
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- Assess your profit margin.
- Adjust pricing (usually)
- Deal with cost
- Implement efficiency measures
Or a combination of all these.
Mistake 5 – You’ve lost that lovin’ feeling
The BIGGEST killer of mature small businesses I see isn’t the numbers.
It’s not suddenly running out of cash either (although sometimes this ends up being the result).
Instead, it looks like this.
You probably enjoyed some initial success with the business, but over time have become comfy, complacent or just bored.
You may have:
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- Reduced the time you spend at/on your business.
- Stopped doing what you did that made you successful.
- Lost interest or energy in coming up with new ideas, or refreshing your products.
- Started to view your business as a chore, not a passion.
When business owners reach this point, they often talk to us about starting something new, selling their business, or jacking it in altogether. We often find that the *root* cause is that it’s difficult to take the business to the next level. As a result, owners think it’s easier (and more fun) just to build something new from scratch.
If you feel the same, you may have simply fallen out of love with your business. This falling out of love isn’t always reflected immediately in the financial numbers for your business. However, you will see it in some metric or measurement such as:
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- A decreasing pool of customers.
- High employee churn.
- Lack of innovation and R&D for new products or services.
As the business owner, you may feel very isolated and wrapped up in your own business ‘groundhog day’ as a result.
Falling in love again
For many of the owners I’ve spoken to on this, what’s worked well to begin getting the love back is to:
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- Put yourself amongst those who are doing bigger business projects than yourself, to gain perspective and inspiration.
- Talk to people who’ve been through the same thing, to gain insights into how they overcame those issues.
- Listen to and watch positive business content, including attending live in-person seminars, presentations and expos.
- Find a mentor who can offer you both wisdom and a practical approach drawn from their own experience.
- Get out into inspiring places to re-spark your interest in more than work.
- Revisit what you want out of life and the business – find a new goal.
As business owners we are not robots, so some fluctuation of love, desire and effort is expected. However, if it’s all trending downwards … it’s time to do something different.
How we can help
As business accountants, we genuinely want your business to succeed. So we hold regular free networking sessions, and we have a wealth of video and podcasts offering advice and insights for free online, to view anytime.
If you need more specific, 1-2-1 help with your business:
About the author:
Dan Heelan is the Business Services Director of Heelan Associates, an accounting firm that helps small business owners across the UK start, survive, and grow.
With a background as a small business owner himself, he discovered his passion for accounting and tax early in his journey and now focuses on empowering fellow entrepreneurs with the knowledge and tools to navigate the financial side of running a business.
You can see and hear Dan in action in his regular: