There are a number of common reasons for business failure to occur, such as:
• Extending too much credit
• Growing at too fast a rate
• Poor financial management
• Unexpected costs
• Bad luck
• Abrupt change in business environment, e.g. due to COVID-19
• Theft and/or fraud (which is made more likely when there is poor financial management)
If you are noticing downward trends in your business, it is imperative that steps are taken as early as possible to reduce the risk of insolvency, liquidation, and administration.
Poor cash flow management
The cash flow gap arises when your business expenditure exceeds your earnings. However, it is possible to have paper profit while also having problems due to insufficient cash flow to pay creditors.
Poor cash flow can be caused by:
• A lack of credit control
• Incurring a bad debt
• Poor accounting practices
• Inaccurate forecasting
• Sudden increases in stock levels
• Taking longer to receive the payment from credit sales
Loss of your largest customers
The loss of a main trade account can massively impact turnover and trading profits. This can often encourage businesses to offer large discounts or extended credit terms in an attempt to revive their sales figures, but this often has the opposite effect.
Insufficient management control
Having a strategic and well thought out plan for your business, in terms of what the best markets are to operate in, what your margins should be, and making sure you have sufficient levels of financial resources, is of the utmost importance.
A lack of management control can arise from:
• Having no business plan
• A lack of understanding of costs, markets, and crucial customers
• Wasted marketing expenditure
• Wasted time spent keeping creditors away
Inappropriate financing
This is another major cause of company failure and can be due to things such as:
• Use of short-term overdrafts for long-term acquisitions
• Failure to make use of the correct facilities when sales are growing substantially
If you are noticing downward trends in your business, it is imperative that steps are taken as early as possible to reduce the risk of insolvency, liquidation, and administration. Corelco offer a supportive set of options which aim to protect business owners and return their companies to profit.
Call Corelco on 0203 773 1417
