Why Do Businesses Fail?

A debt solution may not be suitable in all circumstances. Fees may apply and will affect your credit rating

Article by Laura Walshe of The Business Debt Advisor

The UK is full of ambitious and talented business owners with thousands of new ventures launched each month.

Despite this, the overall number of company insolvencies in the first quarter of 2019 increased.

The latest statistics on company insolvencies in England and Wales confirm there were 4,187 total company insolvencies from the start of the year to March 2019. This is 6.3% higher the last quarter in 2018, and also an increase compared to the same period in 2018.

The number of Administrations, Company Voluntary Arrangements and Voluntary Liquidations has all increased, with the number of Administrations at the highest level in five years.

The uncertainty facing the UK is likely to see many more businesses stumble, and possibly fail.

But failure is not inevitable and giving thought to why businesses fail can help business owners reduce their own company’s risk.

So what leads to business failure?

Unrealistic Forecasts

Your initial business plan and supporting financial forecasts must be realistic, and achievable.

At The Business Debt Advisor we see many businesses fail because the original forecasts were too optimistic or the plan itself had critical flaws which were not addressed at an early stage.

Failure to Adapt

By its nature a business plan is exactly that, an idea.

Too often business owners will create a plan and stick to it rigidly. There is nothing wrong with this approach if your plan is working, but the current climate is ever-changing, and a good business plan should be flexible enough to navigate uncertainty or unforeseen events.

In practical terms, maybe you thought one product or service would be more profitable, but another is performing better – the key to success is recognising and responding to this.

Failure to Delegate

It would be fair to say that small business owners often put their heart and soul into their business venture, and may want to oversee all aspects of it.

But failing to delegate when your organisation expands may mean that you are not dedicating enough time to key areas, and your business may be stunted from achieving what it is capable of.

Late Payments

Late payments are a real concern for any business.

Business owners should make sure that they invoice promptly and send polite but firm reminders if payment is not made.

If one particular customer pays late on a regular basis, it may be worth considering whether or not to continue supply.

Lack of Diversity

The Pareto Principle – also known as the 80-20 rule – states you get 80% of your sales from 20% of your clients.

However, if you get 80% of your sales from a smaller number of key clients then this can be dangerous territory and you will need a contingency in place if those clients go busy, or simply take their business elsewhere.

For more useful information on how to drive profitability within your business please get in touch, or visit our website.

If have concerns regarding the stability of your business please fill out our Contact Formand we will be in touch.

Alternatively, call our FREE ADVICE LINE on 0800 781 0990 or chat to us online.

Our team has extensive experience in dealing with businesses across all sectors and can arrange an initial consultation at no cost, usually on the same day.

Find out how we can help your business

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