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WHY
BUSINESSES FAIL
I am frequently
asked by providers of funding to companies, particularly bankers
and unsecured creditors, "what
are the main reasons for company failure?". Reflecting back over
the years at my responses - very little changes - and despite the
wealth of professional support that is now
available.
Of course industries enjoy, and suffer, the
ups and downs of the economic cycles. Periods of boom have attractions
for a growth in "entrepreneurship" with
no shortage of banks prepared to back a winner - and the oversupply,
inevitably leads to a downturn and a serious growth in business failures.
Whilst the economic cycle is often blamed for business failures,
and it certainly does affect many; the single determinant for failure
is undoubtedly the quality of the businesses' management. It's
true that matters are often outside their control. For example,
a ban on beef exports for health reasons affects all beef producers
- including the organic farmer with traceable herds. However, in
the main, it's the inability of management to respond to changes
in market conditions that is the root cause of the bulk of business
failures.
Sometimes those changes will be quite rapid, the fashion industry
typically experiences very quick changes in styles, colours and
so on - not forgetting the effect of hot, cold or wet weather!
It's the kind of industry which needs a depth of management skills
and experience and capital to support periods of poor seasonal
trading. It's the management's task to manage these difficult periods
- spot the problems early and take action.
So what are some of the typical problems that can affect businesses
- and create disasters for some. Let us ponder on these scenarios:
What can the row of suburban shops do when a major supermarket
opens 200 yards away - selling on price and quality, 7 days a week?
Or what is likely to happen to the village shop when Tesco opens
10 miles away?
What are the options for a major clothing retail chain when it
suffers a shift of market because its competitors now beat them
on style, quality and price?
What options does the proprietor of a residential care home have
when bed occupancy is reduced by new regulations and income drops
by 30% and costs say constant?
These are just a few typical problems that
we come across on a very regular basis - and most of them, however
unpalatable, are
seldom tackled, with the inevitable result - with losses for the
proprietors, creditors and a loss of jobs for employees. Many businesses
try to "hang in" there and in the end lose all they had - what
a shame when perhaps some straight talking with their accountant,
when problems first emerged, would probably have found a solution.
If your business is starting to experience difficult trading conditions,
please seek professional help sooner than later - problems don't
go away - they only get worse, as options for a recovery disappear
over time.
If your business is starting to run into problems, speak to Jeremy
Priestley, 0114 275 5033 - or complete the enquiry form on this website.
Jeremy Priestley - Managing Partner
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