Business Failure?
- Thread starter Adan Bert
- Start date
They vary so much. The basics I suspect would be, inept owners/management, lack of funds due to late payers, defective cash flow forecasting, bad debtors and the inability of the owners/management to adapt to an ever changing economic climate amongst others. And in my case franchisees, that I inherited when I took over the business, who couldn't be arsed getting out there and running their businesses and decided to blame the company for their failings.
In the end it brought a company down that I had built up with over 50 licensees and 8 master licensees around the world.
I did however learn a hell of a lot from that experience, which is still going on, and now I stand for no nonsense from anyone, Gov departments, Tax man and most of all anyone who wants to work with me.It sounds arrogant but when you have lost the lot and have to start again you get hardened.
In the end it brought a company down that I had built up with over 50 licensees and 8 master licensees around the world.I did however learn a hell of a lot from that experience, which is still going on, and now I stand for no nonsense from anyone, Gov departments, Tax man and most of all anyone who wants to work with me.It sounds arrogant but when you have lost the lot and have to start again you get hardened.
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Good answer from PSL above. In my experience, I'd add hiring the wrong staff and being too willing to overlook non performance in the hope that it would improve, so as to not "rock the boat" so to speak. It can be a hard transition from employee to employer and business owner.
Then you have a long list of small businesses which were sunk through stupid purchases and financial agreements. Overambitious leases, little in the way of termination clauses, no remedial planning, buying flash cars and paying no attention to operational risk.
The last and biggest one though is spending income as if it were profits
Then you have a long list of small businesses which were sunk through stupid purchases and financial agreements. Overambitious leases, little in the way of termination clauses, no remedial planning, buying flash cars and paying no attention to operational risk.
The last and biggest one though is spending income as if it were profits
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Reading between the lines of posts here on UKBF I suspect many businesses don't understand their costs. They start trading, subsidising poor earnings with savings, then when savings dry up they fold, often blaming everything except the fact they were busy fools running at a loss.
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I
ITsoldUK
Just listening to the honeymoon circle who say its a winner then proceeding without any long term strategical thinking and an emotionally detached business plan (if done properly) that will highlight any financial pitfalls...
Sent from my GT-I9300 using UK Business Forums
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F
fairdealworld
Depends hugely on the business. One thing which does affect bricks and mortar retailers particularly if tied in to leases is change in the footfall in their area. Sometimes there are very clear reasons which can include new supermarket/retail park/shopping centre opening not in the area but nearby. Sometimes new parking restrictions or increases in parking fees can have a profound effect too. But sometimes footfall changes for reasons which all the local businesses struggle to define.
I'm a retailer tied into a lease in not exactly a High Street but a local shopping area. We moved into the premises some years back because the footfall was so good. Today there is a reduction in footfall in the area which is more than can be accounted for by the recession and/or the increase in online shopping. Nor are there any new supermarkets/retail parks/shopping centres roundabout nor have the Council so far dared to try to start charging for parking. Nevertheless footfall has collapsed.
I and other local shop owners are trying to fight this but it is ultra hard when you can't detect the full underlying reason and also when pretty much every new customer who sets foot in your shop says how wonderful it is and how amazed they are to find so many really good and interesting shops in such a small area. These customer comments are accurate, there ARE some really good/useful/interesting shops clustered in a small area. We know it, the customers rave about it, but overall there are ever fewer customers...
I'm a retailer tied into a lease in not exactly a High Street but a local shopping area. We moved into the premises some years back because the footfall was so good. Today there is a reduction in footfall in the area which is more than can be accounted for by the recession and/or the increase in online shopping. Nor are there any new supermarkets/retail parks/shopping centres roundabout nor have the Council so far dared to try to start charging for parking. Nevertheless footfall has collapsed.
I and other local shop owners are trying to fight this but it is ultra hard when you can't detect the full underlying reason and also when pretty much every new customer who sets foot in your shop says how wonderful it is and how amazed they are to find so many really good and interesting shops in such a small area. These customer comments are accurate, there ARE some really good/useful/interesting shops clustered in a small area. We know it, the customers rave about it, but overall there are ever fewer customers...
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Not knowing/understanding the numbers is a big one - i.e. just looking at the bank statement and spending it rather than thinking about creditors, tax bills, etc., leading them to think they're profitable when they're not, thus spending money that should have been ring-fenced for other needs. Easily rectified with good book-keeping and simple management accounts, but that's too often at the bottom of the list.
Other than that, it's failure to think and plan strategically. Lots of businesses just don't do any long term planning and seem incapable of broadening their vision into new markets, new products, new customers, etc. They may have prepared a business plan when they first started (although many don't and many others have it done for them just to get finance!), but once they're up and running, they never "strategically" think again.
Just because they're plodding along happily making an adequate profit, they sit back and select cruise control. When new competitors enter the market, or customer demands falls, or there's some regulatory change, they only start to panic after their sales drop, their overheads rise, profits fall, and they suddenly find themselves without enough cash in the bank. Usually, they realise far too late and the business fails. However, had they kept an eye on the ball, not just for their existing products, customers and suppliers, but also looking at new market opportunities, they could have gradually turned their business into a different direction and secured its future. A plan B if you like.
I've recently been very impressed by someone who had a very successful business, started from scratch, turning a very healthy profit, with plenty of cash reserves, who has decided to close it down. To an outsider, it seems a crazy decision, especially looking at historic accounts which show no signs of a downturn. But the owner has seen the future, seen current year sales start to slide, seen loads of new competitors entering their market, and has timed the closure almost to perfection, literally within a few weeks of it turning from profitability at much lower levels into loss making. Got the staff redundancies timed right, got the exit from the leased premises timed right, got an orderly sale of assets (equipment & stock) timed right (they've been having various sales over the past few months and also drip-fed job lots into the market for their competitors to buy, and now finally sold their remaining asset - the domain name and customer database.
Now, they're just about to start their next business venture (completely different), again, for the second time, another start up from scratch, again identified a gap in the market. They're completely clear of their earlier business, so that they have loads of time and energy (and money) to start the next. That's strategic long term planning at its best. Had they not been on top of the first business, had they not seen the signs and planned accordingly, they could have easily lost all their cash reserves by it trading at a loss with them not really realising, and then it would have been firesale time to get shut of it - may have ended up with very little cash left.
Other than that, it's failure to think and plan strategically. Lots of businesses just don't do any long term planning and seem incapable of broadening their vision into new markets, new products, new customers, etc. They may have prepared a business plan when they first started (although many don't and many others have it done for them just to get finance!), but once they're up and running, they never "strategically" think again.
Just because they're plodding along happily making an adequate profit, they sit back and select cruise control. When new competitors enter the market, or customer demands falls, or there's some regulatory change, they only start to panic after their sales drop, their overheads rise, profits fall, and they suddenly find themselves without enough cash in the bank. Usually, they realise far too late and the business fails. However, had they kept an eye on the ball, not just for their existing products, customers and suppliers, but also looking at new market opportunities, they could have gradually turned their business into a different direction and secured its future. A plan B if you like.
I've recently been very impressed by someone who had a very successful business, started from scratch, turning a very healthy profit, with plenty of cash reserves, who has decided to close it down. To an outsider, it seems a crazy decision, especially looking at historic accounts which show no signs of a downturn. But the owner has seen the future, seen current year sales start to slide, seen loads of new competitors entering their market, and has timed the closure almost to perfection, literally within a few weeks of it turning from profitability at much lower levels into loss making. Got the staff redundancies timed right, got the exit from the leased premises timed right, got an orderly sale of assets (equipment & stock) timed right (they've been having various sales over the past few months and also drip-fed job lots into the market for their competitors to buy, and now finally sold their remaining asset - the domain name and customer database.
Now, they're just about to start their next business venture (completely different), again, for the second time, another start up from scratch, again identified a gap in the market. They're completely clear of their earlier business, so that they have loads of time and energy (and money) to start the next. That's strategic long term planning at its best. Had they not been on top of the first business, had they not seen the signs and planned accordingly, they could have easily lost all their cash reserves by it trading at a loss with them not really realising, and then it would have been firesale time to get shut of it - may have ended up with very little cash left.
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90% of the failures I see are down to lack of formalised systems, procedures and controls, particularly financial. Good technicians don't always make good businessmen; and in the UK we don't teach people how to run businesses.
Forecast, test and measure performance frequently. Delegate or outsource those tasks you haven't been trained for - it's a false economy (and can be fatal) not to. And if you haven't had any training, read books to expand your knowledge. Ignorance is no excuse for failure.
Forecast, test and measure performance frequently. Delegate or outsource those tasks you haven't been trained for - it's a false economy (and can be fatal) not to. And if you haven't had any training, read books to expand your knowledge. Ignorance is no excuse for failure.
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I think that's usually a symptom, rather than a cause, although an unexpected bad debt, for example, can be a contributory factor. But if suffering one bad debt brings a business to its knees, that usually indicates other issues.
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Running out of cash tends to be the end result of a company failing and is sometimes the first time the owners realise something is horribly wrong, which comes back to not having a proper grasp of the companies finances.
Going slightly off topic rather than focusing on what causes a business to fail, there are plenty of things every company should do to ensure this doesn't happen.
Including :
1) Producing monthly accounts showing a breakdown of all costs, including allowing for VAT, Corporation Tax etc.
2) Not taking dividends which aren't from profit (see number one)
3) Not expecting someone else to look after YOUR business, it's not your accountants firm it's yours
4) Ensuring you keep control of who owes the company money and doing research into other firms before giving them credit (including doing work for a company who won't be paying till completion always try and get them to pay in stages of the project, so you will at least get some money if they go under without paying you)
Going slightly off topic rather than focusing on what causes a business to fail, there are plenty of things every company should do to ensure this doesn't happen.
Including :
1) Producing monthly accounts showing a breakdown of all costs, including allowing for VAT, Corporation Tax etc.
2) Not taking dividends which aren't from profit (see number one)
3) Not expecting someone else to look after YOUR business, it's not your accountants firm it's yours
4) Ensuring you keep control of who owes the company money and doing research into other firms before giving them credit (including doing work for a company who won't be paying till completion always try and get them to pay in stages of the project, so you will at least get some money if they go under without paying you)
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I recommend the book, "The E-Myth Revisited", by Michael Gerber. Every owner of a small business (and some larger ones!) should read it. You can find it on Amazon. It costs less than £8 and can potentially make you £000s! (No, I don't have any vested interest in it. I just believe it's the best business development book ever written).
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B
bonitafernan
Like everyone said, it depends on business to business.
Here are a few points I think are to blame.
1. Ignorance - Not paying enough attention to your business needs.
2. Customer Service - Bad CS leads to unhappy clients, who lead to loss of business and sometimes even new business. This happens often when you network with the same people. Gossip/Bad publicity travels fast!
3. Staff - Especially in retail. Attitude will only create problems.
4. Bad sales strategy
5. Poor cash flow management - Had to repeat this one!
Here are a few points I think are to blame.
1. Ignorance - Not paying enough attention to your business needs.
2. Customer Service - Bad CS leads to unhappy clients, who lead to loss of business and sometimes even new business. This happens often when you network with the same people. Gossip/Bad publicity travels fast!
3. Staff - Especially in retail. Attitude will only create problems.
4. Bad sales strategy
5. Poor cash flow management - Had to repeat this one!
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Good points. On point 4 the average capex for the product I sell is £150k. There are two payment schemes for endusers to purchase, install etc;
1. 50% upfront - 50% prior to delivery onto site for installation and commissioning. If the first 50% gets paid but the second doesn't then no problems, I can re-sell the product as new as it hasn't been installed.
2.40% upfront, 40% prior to delivery to site, 10% prior to commissioning and 10% two weeks after commissioning.
Both the above options depend on various factors concerning the enduser.
Plc's pay upfront
On option 1 if the second instalment doesn't get paid they lose the first instalment as per the contract. Which is explained to them. All deposits and payments are ring fenced our end though.
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Good points. On point 4 the average capex for the product I sell is £150k. There are two payment schemes for endusers to purchase, install etc;
1. 50% upfront - 50% prior to delivery onto site for installation and commissioning. If the first 50% gets paid but the second doesn't then no problems, I can re-sell the product as new as it hasn't been installed.
2.40% upfront, 40% prior to delivery to site, 10% prior to commissioning and 10% two weeks after commissioning.
Both the above options depend on various factors concerning the enduser.
Plc's pay upfront
On option 1 if the second instalment doesn't get paid they lose the first instalment as per the contract. Which is explained to them. All deposits and payments are ring fenced our end though.
A very sensible way of taking some of the risk out of providing goods/services to customers.
Running a business you have to take some risks but these can be calculated to ensure if you don't get paid then the impact on the business is reduced.
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Just finished reading it, is a good book.
Although it does make the assumption that everyone reading it isn't a good balance of technican, manager and entrepreneur, so for those who are some of it may just seem like commons sense.
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having had plenty of companies that have failed. here is my experience.
1) bad idea never took off.
2) good idea but very new and hard to market and make people change.
3)too rapid expansion following a lucky few months. overheads double but sales only go up 75%.
4) trying to get what is a nice small business with a decent profit into a larger business. The market section is sometimes small no matter how large the overall market is.
5) the biggest is lack of proper cash flow forcasts. cash is needed at short notice.
6) spending money on toys (water coolers, smart offices etc)
7) hiring friends and keeping useless people in key roles because you like them.
1) bad idea never took off.
2) good idea but very new and hard to market and make people change.
3)too rapid expansion following a lucky few months. overheads double but sales only go up 75%.
4) trying to get what is a nice small business with a decent profit into a larger business. The market section is sometimes small no matter how large the overall market is.
5) the biggest is lack of proper cash flow forcasts. cash is needed at short notice.
6) spending money on toys (water coolers, smart offices etc)
7) hiring friends and keeping useless people in key roles because you like them.
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Of course it varies; I closed one business down as we were niche market and our largest customer was bought out by another company who wanted us to have a branch in every city in the UK within 4 weeks....we couldn't do it, I don't think anyone could have and we effectively lost 750k of contracts overnight. Sold up, went home. Didn't lose, but that was the business gone.
Started again 18 months later in a totally different field, and now add to it every 18 months or so, so that if one area does become saturated, i have other plans/products/income streams stepping in and taking its place - it doesn't always work, we use Ebay as this is the age of Ebay sadly, and between trying to please your customer, Ebay and PayPal it is both a full time job and a nightmare.
Sometimes a decline can't be forcast or anticipated, sometimes failure is just a learning curve - take Branson and Sugar.....they had so many failures before they honed their talents!
Started again 18 months later in a totally different field, and now add to it every 18 months or so, so that if one area does become saturated, i have other plans/products/income streams stepping in and taking its place - it doesn't always work, we use Ebay as this is the age of Ebay sadly, and between trying to please your customer, Ebay and PayPal it is both a full time job and a nightmare.
Sometimes a decline can't be forcast or anticipated, sometimes failure is just a learning curve - take Branson and Sugar.....they had so many failures before they honed their talents!
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