Why is my Business Failing?

By 15/10/2018Uncategorized

There are countless businesses in the UK and around the world, with many going on to become huge successes. However, there are also a greater proportion of businesses which fail and you may feel like it is becoming one of those. There are however, a number of reasons for a business’ failing and whilst it is by no means a hard and fast rule, the most common reasons for a business failing are often those worth rectifying and addressing first.

It is also not necessarily the case that your business is flawed or that its very purpose is not worthwhile. There are often factors and reasons that arise and emerge that are very much fixable. This is part and parcel of setting up, running and maintaining a successful business. It may be that you want to sell your business after a few successful years, or perhaps your aim is to maintain its success to support you and your family for years to come.

There are many more possible factors that may account for your business’ potential failure and different industries and business types lend themselves to different potential issues. However, some reasons and factors transcend the boundaries of industries.

Common Reasons for Business Failure

It is possible to split up these common reasons for business failure into those that are more easily fixable and those which may in fact require additional or specialist attention or even the sale of a business. Sometimes, a business may be failing and the best solution is to set up a new limited company to start afresh and this should also be considered.

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Just because a business is seemingly failing, doesn’t mean it can’t be salvaged

Most reasons that cause a business to go down the route of potential failure have perfectly feasible solutions, but it is crucial to identify this as early as possible, as all of them are able to be fixed if the skills and expertise required are available.

When is a Business Appealing to a Buyer?

A buyer may well wish to purchase a business that is on the verge of failure as it may well be salvageable and profitable to them. The buyer may be able to assist a failing business:

  • Industry Experience – If the buyer has experience in running a business successfully, then he/ she could improve the current management of the otherwise failing business
  • Supply Chain Experience – If the buyer experience in dealing with suppliers, then he/ she could improve the relationships with the current suppliers to negotiate more favourable terms, process and arrangements
  • Utilising Existing Relationships – The buyer may be well-connected in the industry in question and so may be able to find new, more feasible suppliers for the business
  • Clearer Understanding of Customers – If the buyer has experience in sales and handling customers, they could work to increase turnover to small and medium customers, thereby changing the spread of the business without alienating the larger customers.
  • Managing the Business’ Existing Debts – With experience in debt collection, a buyer could also use more imaginative methods (of which there are many now) to improve cash flow in the immediate and longer terms
  • Improving Staff Productivity and Performance – If the buyer has experience in managing staff, they may be able to introduce new methods to the business to improve morale and motivation; increasing productivity
  • Updating Business Focus – If the business has good suppliers and customers, it may be possible to switch to product lines that are more current and up to date. There will be some business interruption in achieving this, and it has the possibility to create a degree of ‘obsolete stock’
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Obsolete stock may lead to further issues

When Should I Walk Away from a Business?

Sometimes, a difficult decision to walk away from a business is an important step. It allows you or the prospective buyer to take stock of the successes and failures of the venture in question and allows you to learn from the misgivings and errors that may have led to the business in question’s failure and inability to recover.

It is also sometimes a tougher decision to walk away from a business than it may be to stay on a fight for it. There are various legitimate concerns and reasons for walking away from a business or business opportunity including:

  • Costs and Money – It can be very expensive to change production techniques in the case of a manufacturing or product-based business, as this will often involve new capital expenditure, which is not necessarily taken into account when buying an existing business
  • Premises and Future Costs – If the business is unable to function in its current premises, again, ‘capital expenditure’ will be involved, which is over and above the expected cost of buying the business. In the less common situation of premises that are too large, there is hassle in finding new premises and moving, but the benefit is that the running costs should be lower, so these cases may not always necessarily merit a “Walk Away’
  • Increased Challenges and Competition – To buy a struggling business where competition is increasing is a difficult challenge. Increased competition may require lowering of prices, adding to the current struggle
  • Declining Industry – If the industry is in decline, then there is little one can do, other than move to another industry, which makes the purchase of such a company very questionable in the first place
  • Historical Problems – It is very difficult for a new buyer to deal with historical issues, such as tax claims, penalties or litigation, and if they are serious issues, one may need to ‘Walk Away’