“My business is in trouble with debt spiraling out of control and I simply don't have enough cash to make payments on time. I've read that most small business startups have problems similar to mine, but why?”
This concern is common amongst the directors, managers, and owners of small business startups in the UK, and for good reason – about 2/3 of startups fail within their first 3 years of operation. Usually the failure is brought about by a number of factors that work together synergistically to make business progression difficult. Here are the 4 most common reasons why small business startups don't do well:
1. Inadequate Preparation
Starting a successful startup is all about planning – analysing your market conditions and competition. Some of the things you'll need to know and have planned for:
2. Lack of Help or Too Much Help
Operating a startup all by yourself can be a recipe for disaster. Things happen that we don't expect, and when there's absolutely no one else to fall back on it can be easier to become stuck in predicaments that result in missed deadlines and unsatisfied clients.
At the very least you should have a professional accountant on call and/or a general helper to assist with medial duties so that you can focus on the business. At the same time, hiring too many employees prematurely can drain your cash flow and hinder your company's ability to invest and progress.
3. Borrowing Too Much Money From the Start
Most startup founders are a bit overzealous and as such have a tendency to overestimate their funding needs. The prospect of getting a £50,000 business loan definitely sounds tempting, but realistically you don't even know if your company is going to be profitable yet.
Borrow only what you need to get started, and never borrow more than you'll be able to pay back in the event that the business fails. If you've recently realised that you have too many debt obligations, you may want to consider debt consolidation or a company voluntary arrangement (CVA) as potential solutions.
4. Inexperienced Founders
Unless you've actually set up and managed a business before, there's no way to know how it feels to deal with such pressure and responsibility on an ongoing basis. When you think about it, the entire endeavour is a learning process, as essentially everything you do is a new experience. For this reason there's a much higher chance of making mistakes that could lead to the failure of the company in the long-term.
If you feel as though you won't be able to recover from the current debt situation but you'd like to salvage some of the company's assets before it is dissolved, you may want to contact an insolvency practitioner (IP) to arrange a pre-pack administration sale.
If your startup is not doing as well as you had planned there are still many recovery options that could put you in the 1/3 of those that succeed. Give us a call on 0800 644 6080 or send us an email and tell us about your situation. We're trained and certified in business rescue so there's no problem that we can't help fix.
It is regrettable to see the demise of such a long standing and well-regarded business however due to external factors the closure became inevitable. We are continuing to work with key members of staff to maximise realisations for the benefit of the company’s creditors and ensure that former employees receive their entitlements as soon as possible.Read the Case Study View all Case Studies
12th October 2017 The impact of Brexit and the process of Britain departing from the European Union is likely to push up rates of insolvency among businesses throughout the UK.
11th October 2017 Financial losses and persistent problems with cash flows has led the civil engineering business Owen Pugh to enter administration.
2nd October 2017 Monarch Airlines has become insolvent and ceased trading as a result of “mounting cost pressures and increasingly competitive market conditions,” administrators have confirmed.
29th September 2017 The Bank of England governor Mark Carney has given a clear indication that he expects the base rate of interest in the UK to rise in the near future.
20th September 2017 Confidence among the UK’s small businesses has slumped to the lowest levels recorded since the immediate aftermath of the 2016 Brexit referendum.
Every day we help companies just like yours turn things around against seemingly impossible odds, regardless of your situation we can help. Find your nearest office today.