Running a small business is not easy. 20% of businesses fail in their first year, while about 50% fail by year five.
Against such daunting statistics it’s a wonder anyone starts a business at all. If you understand the challenges, however, you’re well on the way to surmounting them.
In this article we’ll explore the common reasons for business failure, and some potential solutions.
What are the Symptoms of Business Failure?
While not exhaustive, here are some of the typical symptoms of a business that is failing.
- You cannot pay invoices when they fall due
- Your own customers often pay late, stretching cash flow
- Banks are refusing you finance and/or you’re close to your overdraft limit
- Directors are unable to take proper salaries
- Declining Sales
- An Increase in Customer Complaints
- High Employee Turnover
What are the Major Causes of Business Failure?
We’re often asked whether there are qualities or particular pattrns we notice in businesses that have failed.
Certainly, poor organisation plays a part in many. If you don’t understand when tax is due, or how much to put aside each month, or if you spend VAT as working capital rather than put it straight into an account for HMRC, you will end up in hot water before too long. It’s just a matter of time.
On the other hand, many businesses have failed due to shifts in climate. The British high street offers a prime example of this. As the culture of shopping has shifted towards the internet, a whole wave of established and highly successful businesses have gone under because they didn’t evolve fast enough.
The key, then, is to never become complacent. Run the most efficient business you can, but even in the good times imagine where the risks lie, and how you’ll react if they happen. The best leaders are those who forsee those possibilities others haven’t and plan for their occurrence.
What Do you Do When Your Business is Failing?
Before you think about specific strategies to turn your fortunes around, spend time evaluating some of the core factors which have contributed to the current situation.
Be completely honest with yourself about this. And try not to let pride get in the way of really understanding what has happened. If you’re going to do things differently, you’ll need to move emotion aside and work on practical ways to revive the business.
It’s also important to remind yourself why you started the business in the first place. Somewhere along the line that passion may have been lost under the hectic workflow of staying afloat.
Unfortunately there is no magic trick to reviving a business. But you need to be clear on your USP, know your audience, budget efficiently, and run a very tight ship.
How Can I Bring my Business Back to Life?
Turning around a struggling business is never easy. It is not impossible, however, if some of the following points are explored.
- Ensure you have total visibility of your company’s finances -and your accountant is giving you accurate, current information.
- Does the business model remain sound? Are competitors leaping ahead of you with stronger USPs?
- Are you offering your customers the best value proposition? How could you do this better?
- Be ruthless when it comes to cutting costs
- If you’ve lost control, take it back.
- Are employees and customers behind you? To survive, they have to be with you 100%
- Don’t fear change – If the business has reached a place where you are questioning its survival, serious change is necessary.
What Happens if a Business Fails?
No one wants to see businesses go insolvent unnecessarily. As such there are a number of options available both through HMRC, and via insolvency practitioners such as ourselves.They include the following:
Time to Pay Arrangement – This is where HMRC agrees a structured repayment plan, usually over 12 months, to help you pay your tax bill. Find out more.
Company Voluntary Arrangement – Where you cannot pay creditors, the CVA mechanism is a formal payment plan, arranged by an insolvency practitioner, so you can pay creditors at a rate you can afford.
Going into Administration – For larger companies, going into administration offers a moratorium from legal action which an insolvency practitioner can attempt to turn the business around through restructuring to avoid liquidation.
Finance / Invoice Finance – Alternative finance has never been easier to obtain. Many businesses, and especially those who cash-flow cycle is hampered by late payment of invoices, find that invoice finance offers a convenient solution,