Why do Businesses Fail?
Ten Common Reasons
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1 No Strategic Focus
No mission or vision. Leaders are working in the business and not on the business. No drive for business excellence, only upon survival. A sound Business Plan is essential focussing upon the Team and its capabilities.
2 Poor Financial Control.
No profit planning. Disregard for effects upon the businesses Balance Sheet of spending decisions. Poor Credit Control. No bad debt protection. Management accounts not up to date.
3 No Cashflow Management.
Usually associated with reason number 2. Cash is King for SMEs. Poor management means high finance charges e.g. overdrafts or Factoring costs. It often means business failure when coupled with high payments e.g. VAT or sudden bad debts. No cashbook. No cashflow forecasting.
4 Inadequate Cost Control.
The Gross Margin computation is too simplistic, the selling price is always known, but what is the cost price? The contribution from Operations must exceed the Overheads by a long way. Remember, capital repayments and Corporation Tax etc are in addition to overheads.
5 Negative Working Capital
To make and to deliver goods there must be ready cash available to purchase raw materials and pay wages. Crown creditors must be paid up to date, nowadays, and not paying a very powerful creditor – your Landlord – can be fatal. Banks are not in business to bale business out of these problems. Working Capital is not to be used to purchase Capital Equipment.
6 Poor Customer Relationship Management.
Poor Quality Management always leads to customer dissatisfaction. They go elsewhere! If you do not treat them as special; they will not treat you as special. The cost of winning a new customer is very high – the cost of retaining one is very low.
7 Poor Employee Relations.
Lack of respect, lack of training, no teamwork. All lead to a disenchanted workforce who will be inefficient and uncaring.
8 Fraud and Wastage.
Often associated with reason number 7, a no-caring workforce will allow waste to occur unnecessarily. With no ownership values in place, stock or property theft will soon overtake profits.
9 Inadequate Insurance.
Material disasters, Business interruption, Management health even bad debts can be fully insured to prevent business failure. Often overlooked is preventative maintenance of key assets and services.
10 Shareholder Disputes in the Owner-Managed firm.
More common than expected. Major disputes seriously deflect focus from the business. Legal intervention can easily lead to Liquidation of assets and the break up of the business. Inadequate safeguards against serious illness or death of one Director can quickly lead to the same state for the business!
If you think that you or any of your clients have any of these issues, a quick call to Marshvale may help to avert a looming crisis.
Call Alan Cornwall on 01630 647473Marshvale Home Page
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