Failure won’t be at the front of many business owners’ minds when they launch a company. However, with four in ten UK businesses struggling to make it past five years, it’s always worth keeping an eye on the warning signs. In this article, management accountant Kirsty Fitzgerald outlines the five bad practices to avoid if you wish to give your business a fighting chance of success.
Poor cash flow management
You may be sick of being told “cash is king”, but it doesn’t change the fact that poor cash flow management can lead to the demise of any business. Indeed, even a profitable business can fall victim to a crippling cash flow crisis, which is often caused by the ineffective management of debtors, high stock levels, bad debt and late invoicing. Inadequate financing – or selecting the wrong type of funding for your business – can also put it on the path to failure. Without access to sufficient growth capital, whether in the form of personal savings, private equity or debt finance, your business may not have the “fuel” it needs to grow.
Losing control of the finances
Any business owner needs to be aware of their financials and cash position at any given time. The accurate forecasting of income and costs may lead to a few surprises, but it will ultimately help support your cash flow. Business owners should also understand and control their costs – acknowledging risks and opportunities – which should help minimise any nasty surprises. Employing an experienced accountant, or investing in a good cloud-based accounting solution, can help ease the burden of financial management, allowing you to focus on day-to-day business operations.
Bad planning and a lack of strategy
“Failing to plan is planning to fail” – cheesy but true. Quite simply, long-term planning is key to the success of any business. When mapping out the growth of their business, a business owner needs to conduct market research to establish who their customers are and what they need. They also need to recognise their competitors and be proactive regarding trends, to avoid getting left behind. Just look at the numerous bricks-and-mortar retailers that didn’t adapt quickly enough to changing customer shopping habits and are now struggling or have gone under as a result.
Weak leadership
A good leader recognises the skills they lack or the jobs they do not have time for and either employs, outsources or seeks professional advice to fill those gaps. They will also communicate, direct, reward and offer the opportunity for personal growth to their employees, creating a happy, effective and loyal team. Poor leadership, on the other hand, leads to demotivated and ineffective teams, which can easily cripple a business.
Overdependence on a few big customers
An overdependence on a few big customers could easily lead to business failure if one of them suddenly pulls out – both cash flow and profit will ultimately be hit. The temptation could then be to offer discounts to that customer; however, this will only lead to poor margins over the longer term. Minimise your risk by increasing your customer base, diversifying your product portfolio and encouraging your customers to sign contracts with a reasonable notice period.
Here at London & Zurich, we work closely with business of all sizes, assisting them with everything from cash flow management to payment processing. For more information on our Direct Debit and card payment solutions, don’t hesitate to get in touch today.
FAQs
Lack of effort or commitment
Too many new businesses fail because people simply don't put in the work, or they give up when things get tough. Whether it comes down to apathy, complacency, laziness, or underestimating the amount of work required, the end result is the same.
Why do businesses fail in the UK? ›
Lack of effort or commitment
Too many new businesses fail because people simply don't put in the work, or they give up when things get tough. Whether it comes down to apathy, complacency, laziness, or underestimating the amount of work required, the end result is the same.
What is one of the most common causes of business failure? ›
The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.
What are the factors that cause failure in organizations? ›
9 Reasons For Failure
- Lack of communications. ...
- Lack of leadership. ...
- Lack of vision. ...
- Complex systems. ...
- Ill-discipline, lack of trust or negligence. ...
- Not learning from past mistakes. ...
- Poor reporting channels. ...
- A lack of business goals overview.
6 of the most spectacular business failures in history
- The Medici Bank (1397-1494) The Palazzo Medici Riccardi. ...
- Virginia Company (1606-1624) ...
- Tulip mania (1636 – 1637) ...
- Company of Scotland (1695-1707) ...
- South Sea Company (1711-1853) ...
- The Company of the West (1717-1731)
According to the research, financial uncertainty is the top risk facing UK businesses due to rising inflation, energy prices, and raw material costs. However, only 34% of respondents see it as a significant concern, the lowest percentage in the last three years (43% in 2021, 37% in 2022).
Why did industry decline in the UK? ›
In particular, it is argued that the post-war settlement between government, employers and trade unions resulted in a harmful policy regime which included nationalisation, the support of failing companies, the toleration of militant trade unions and a lack of an effective competition policy.
What are the five causes of business failure? ›
In this article, management accountant Kirsty Fitzgerald outlines the five bad practices to avoid if you wish to give your business a fighting chance of success.
- Poor cash flow management. ...
- Losing control of the finances. ...
- Bad planning and a lack of strategy. ...
- Weak leadership. ...
- Overdependence on a few big customers.
The main causes of failure in life are poor environmental influences, the wrong mindset, bad habits, and lack of motivation. All these reasons for failure can be addressed if you identify which ones apply to you and create a plan for removing them.
What is the most common business to fail? ›
What industry has the highest failure rate? Transportation, construction, and warehousing have the worst failure rates with 30%-40% of these businesses surviving five years, while approximately 50% of all businesses make it to their fifth year.
And according to Steve Smith, the author of Managing for Success: Practical Advice for Managers, the main reason why most new managers fail is because they were never properly trained to manage.
What are the three main types of failures? ›
However, when you observe incident reporting or issue reporting systems, you find that the mistakes and failures found in the majority of organisations can actually fit into three categories. These are preventable, unavoidable/complexity-related, and innovative or intelligent failures.
What is the most corrupt company ever? ›
Enron has become synonymous with willful corporate fraud and corruption. The scandal also brought into question the accounting practices and activities of many corporations in the United States and was a factor in the enactment of the Sarbanes–Oxley Act of 2002.
What is the #1 reason why businesses fail Why? ›
The number one reason small businesses fail is inadequate cash flow management.
What are 4 famous failures? ›
Steven Spielberg was rejected from film school three times. John Grisham's first book, A Time to Kill, was rejected 28 times. Albert Einstein had the label "mentally slow" put on his permanent school record. Henry Ford's first two automobile companies failed.
Why is the economic situation in the UK so bad? ›
Energy costs went through the roof and since the UK (like most of its European neighbours) is a big energy importer and since energy prices are embedded in pretty much every product, from tomatoes to paper to computer chips, this country has taken a significant economic hit.
Is the UK a good country for business? ›
Is the UK a Good Country for Business? Absolutely, yes! The UK boasts a robust and diversified economy that consistently ranks among the largest in the world. Its stable political environment, strong legal framework, and well-developed financial markets make it an attractive destination for entrepreneurs and investors.
What is the survival rate of small businesses in the UK? ›
New enterprise survival rate in the UK 2007-2021
As of 2021, business enterprises founded in 2020 in the United Kingdom had a one-year survial rate of 92.9 percent, compared with 94.6 percent in the previous year. Of businesses founded in 2016, just 38.5 percent were still operating in 2021.
Why is UK business investment low? ›
Poor transport infrastructure, high regulatory burdens, high energy costs, high housing and rental costs, and high costs of skilled workers make the UK a less attractive place for internationally mobile investment. They may also reduce the return on investments more broadly.
