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Business Failure – How To Avoid The Pitfalls

BY: Andrew0 COMMENTS CATEGORY: Business Planning
  Why is there such a high rate of failure among small businesses? Bloomberg states that 8 out of 10 entrepreneurs who start a business fails within the first 18 months – a failure rate of 80%! Small businesses accounting for 99.3% of all private sector businesses in the UK and 99.7% in the US is a major factor, but more importantly is the problems faced by small business due to cashflow and poor financial management. We are well aware of the economic downturn since the Financial Crisis in 2007/8 and are now being encouraged by the news that recovery is on the way.  Unfortunately for us, small businesses suffer these effects more than our larger counterparts.  As they usually have larger buffers in terms of cash, stocks etc. to save for a rainy day.

But It Can’t All Be Due To The Downturn

In a recent study by, they found that the reason why US small businesses fail was:
  • They were out competed (19% of all failures)
  • They didn’t have the right team (23%)
  • They ran out of cash (29%)
  • There was no market (42%)
  • They experienced cashflow problems (82%)

So How Can These Issues Be Addressed?

A critical discipline that must be adopted is having a sound credit management system.  Business can’t fail through a lack of profits but they can through a lack of cash.  This is made far easier by having a computerised accounting system and instead of waiting until the debt is overdue to find out that there is a problem, implement a system whereby you invoice as soon as possible and remind, remind, remind until you are paid. A computerised system can not only provide you with the minimum financial information you legally require, it can also provide useful management data that will make running your business far easier.  It can help you forecast by providing trends, margins and plan, whilst giving you useful information to aid your decision making.  In a CIMA study 54% of businesses stated that their accountant failed to assist with the strategic development of the business, a management accounting system can. We cannot leave it to factors outside our control to determine the future of our business; the main driver must be the owners/directors.  If you identify a weakness, take immediate steps to resolve the situation before it’s too late.Posted in Business Planning