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Ten Top financial reasons for business failure
Many businesses in the UK struggle every year to avoid insolvency. For some the problems are too great and they have to succumb to the inevitable and close.
A long established website, the Insolvency Helpline, has conducted research into the reasons for business failure. We have analysed those reasons, and have broken them down into various categories, namely, financial, management and marketing.
Financial reasons for business failure
- Failure to control cash. Keep stocking levels at a minimum, stretch credit terms to limits, but tighten up credit control to make sure your cash stays positive.
- Failure to pay crown taxes (PAYE and VAT). These often go by the way side when other creditors are pressing for payment.
- Under-capitalisation. Does your business have enough capital to start? Will you run out of cash before you can really establish yourself on a firm footing.
- Under pricing. It can be an advantage for short term promotions and loss leaders that attract bigger and better business, but make sure that the cost of your services cover costs and deliver a profit in the longer term.
- Non-payment by customers. Get paid! There is no point in delivering a service or goods and not getting paid. Put as much effort into getting paid as every other part of your business.
- Failure to control costs ruthlessly. Get your costs under control. Think of someone like Ryan Air. If it doesn't add value don't spend money on it.
- Over trading. Before you say yes to every order that comes through the door, think about the resource that it will take to complete it, when it will deliver cash back in and what else you could be spending valuable resource on which may deliver more return quicker. If you take on everything you are asked to do it can lead to the collapse of the business, as it runs out of cash.
- Rising costs. Make sure that you have a good understanding about what each element of your business is costing you. Small changes in some supplier costs may seem manageable, but when these are aggregated together, they can add up to quite a sum. Can you afford to pass all these on?
- Tax liabilities. Do you know what you have to pay the Crown by way of Vat and PAYE and when? Have you built all these costs in to your costs every month, or do you consider these optional payments that you may or may not be able to make.
- A lack of control over cash flow. It is easy to spend money, too easy sometimes, but can you account for all money spent and did it contribute to growing your business. Money often leaves a business faster than it comes in, but eventually, there must be more coming in than going out or the business will fail.
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