So, why do businesses fail?
Over 50% of businesses fail in the first year of trading in the UK and 1 in 3 fail in the first 3 years. One of the mysteries of running your own business is why some businesses fail whilst others thrive.
We can often put down failures down to “bad luck” or “just the way it worked out”. However, whilst many business success stories have some element of “luck” or being in the “right place in the right time” it’s also important to understand there are often predicable and avoidable mistakes made.
So, why do businesses fail?
Bad management accounts for a lot of companies that fail – Bad managers make wrong decisions too often alongside failing to understand market changes. They are often slow to react to new challenges or opportunities.
Even the strongest businesses can wilt during a recession. The recent recession caused many businesses to fail. The Banks stopped funding, decreased overdraft facilities, sales slowed and bad debts increased.
It’s common for new businesses to underestimate how long it will take to get their business functioning effectively. Often they will look at the best case scenario for revenue and the lowest figures for costs. It’s worth noting that it can take up to 3 years for a company to get momentum going.
Without a positive and strong marketing strategy, companies can start to decline. This can often lead to relying too heavily on one large, dominant customer and/or constantly increasing prices to existing customers, to compensate for the lack of new ones.
Poor cashflow is the number one reason why businesses fail. They simply run out of money. Not converting sales into cash quickly enough can cause a company to operate at a trading loss and consequently fail.
Poor product / service
it doesn’t matter how great the website and marketing is if the what’s being sold is simply inferior to competitors. if the product / service is too expensive or simply poorly received or perceived then the business is in trouble.
Key personnel leave
Some companies are successful because of the expertise of certain people – If key personnel leave or die, it can drastically affect the fortunes of the company. For example, a Director or Senior Salesperson with strong contacts and links.
Government policies or sometimes a lack of policies can cause problems. Whether this is laws that limit or increase access to a market. Additional taxes or levy’s or even products that are banned or limited for sale can have a significant impact.
Competitors can have a dramatic effect on a business’s fortunes. If a new competitor enters the market with perhaps a better product / service or perhaps a lower price this can mean losing customers.
Whilst there is no “fail-proof” way of ensuring success there are lessons to be learnt from the mistakes of other. See this list of companies.. some of which you’ll recognise.
Waters & Gate offer both commercial and consumer debt collection. The service is based on a no win, no fee policy.
For free advice on any of the issues raised in this article please call Waters & Gate the credit management and debt recovery specialists, 029 2126 2130 and see our team here.