Watch out for the Warning Signs to avoid business failure
Tim Corfield of Griffin and King, Insolvency Practitioners gives his reason for business failure based on his experience of advising businesses for over 30 years.
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- Poor management. Business owners are often oblivious to warning signs that all is not well and are unprepared to face up to reality. They often lack relevant management expertise in important areas like finance, purchasing, selling and production and can be unwilling to seek appropriate help. Unless business owners recognise their shortcomings, and delegate those tasks they could face severe difficulties. A good accountant is essential to crunch the numbers.
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- Failure to respond to a change in market conditions. A business is a dynamic entity and long term success will not be achieved unless a flexible approach is adopted to an ever changing market. It is essential to be up to date or ahead with the latest business trends. This means constantly studying the competition and your customer base and adapting the business where necessary. The ability to recognise opportunities and be flexible enough to meet them is a key ingredient to surviving and even prospering in the toughest business climate.
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- Under investment. Business owners often under estimate just how much capital is needed before they have even had a fair chance to succeed. There is often an unrealistic expectation of incoming revenue from sales and, generally, budgeting has not been properly thought out. It is essential to work out how much money a business will need, not only initial start up costs but also the costs of staying in business. It is often the case that a business may take a year or two to get going. Adequate funds need to be set aside to cover all costs until profits from sales will cover them. Many businesses end up facing insolvency because they took on too much debt.
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- Over borrowing. Business owners can often believe their only way to jump start their business is by taking out loans. The thought is that debt will allow the business to grow faster and expand quickly. This can be true in good times with a good business model. However, a down turn in the economy can lead to ruin and failure.
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- Recessions can eliminate or greatly change a market and you need to have flexibility within your company to adjust accordingly. This is especially true now with the prospect of increasing costs of borrowing and raw materials as well as energy inflation.
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- Over trading. Over expansion happens when business owners confuse success with how fast they can expand their business. Without adequate control of a rapidly expanding business there is a high chance that the situation will result in insolvency. A focus on slow and steady growth is always best. Once there is an established, solid customer base and a good cash flow the business can develop at the right measured pace. If expansion is warranted always research and identify the areas that require investment, in order for you business to grow.
