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5 Reasons Why Businesses Fail

5 Reasons Why Businesses Fail

23 August 2016:  Alan Limb, an Insolvency Practitioner from BRI’s Southampton office was asked recently by a Consultant, Dale Howarth, to offer his thoughts on why businesses fail. Alan’s response is summarised below.

In my career an Insolvency professional since 1991, I have advised numerous businesses in financial difficulty. There are common themes running through those situations which explain why they needed my help. Five of them are as follows:

  1. People go into business wearing rose tinted blinkers. They are destined to fail because they don’t seek professional help beforehand on whether that is a wise move. They have dreamed of running a pub or buying a post office and they can’t believe that they won’t succeed. Their dream becomes a nightmare when the one word of advice that they should have listened to is, “don’t”.
  2. Owners don’t know how their business is performing. They should produce relevant, daily KPIs to show how they are doing against budget and react accordingly.  Frequently the only information available each day is how much of the overdraft facility remains unused.
  3. The owners are good at what their business does, not at running a business. People often switch from employee to owning a business which does what their employer did. They might be a craftsman who can produce excellent furniture but they may have no experience of marketing, credit control or managing staff. Unless they fill the gap in these areas with appropriate skills internally or externally their business is likely to struggle.
  4. The business ignores external factors that will threaten its future. Historically, newsagents have performed well through the sale of newspapers and cigarettes. However, the sector is now in decline as newsprint moves online and tobacco sales are increasingly outlawed.
  5. Customers now spend their money elsewhere. We have seen the recent demise of BHS and other leading brands on the High Street. The major reason was people no longer shopped there. The advent of the internet has increased customer choice and reduced loyalty. Shoppers don’t visit stores when they can buy a greater range of goods online from the comfort of their own home. 

If you or your clients are facing financial difficulties for the reasons outlined above then please contact a member of the experienced BRI management team at one of our offices for free, confidential, no obligation and independent advice.