Why businesses fail?

The debate around why businesses fail will never end, and whilst the list of reasons is endless, we can simplify it somewhat for you.

It is universal; the sales people believe that without them, no business can succeed, the people in manufacturing will argue just as convincingly that, without something to sell, the sales people will be worth nothing. Not to be outdone, the marketing department is convinced that until they have created demand, neither production nor sales can do anything. And so it goes on, each department believing that it is the backbone of the business.

Peter Rosslyn Smith, an experienced business rescue practitioner says; ” Every business in difficulty that I have assessed, I have found that their administration has been in a mess, and quite apart from the many statutory compliance issues, there is a simple lack of financial information. Without this, the prospects of any business succeeding are extremely low”.

Excel is frequently relied upon to produce spreadsheets; these could used for budget setting and managing transactions for example. Almost everyone of us have, at one time or another, fallen victim to the formula error, and one or more of these generally lurk within your cells. The instant this data moves from one person to another, the introduction of further errors is inevitable. Has excel replaced the ‘back of a cigarette box’ business plan? And is poor administration the thief of start up business capital or the leak in our operating costs.

Good business decisions are based on analysis of good information, which can be provided by complete financial data. Most start up, small or medium sized businesses cannot afford the expense of a registered accountant; and often the importance of this is highlighted in times of difficulty. Had as much resources been applied to the administration of the business at start up, the prospects of its success would have been a great deal better.

It is thankfully seldom too late to regularize your business administration during the normal and ordinary course of business, and the results could be startling to you. The services of an experienced registered accountant could provide the following business critical information;

  1. cash flow management,
  2. accurate revenue management,
  3. accurate input costs,
  4. stock control,
  5. debtors management,
  6. gross profit analysis,
  7. operational break even and gearing,
  8. statutory compliance.

Without this information it is nearly impossible to consider the most basic of trading decisions which should precede any sale or service.

Before you make your next business decision, ask yourself if you have all the information you need in order to make an informed decision, if your answer is, you don’t know, now would be a good time to consider the services of a registered accountant. And when next you hear or see the question; why businesses fail? perhaps you can add another reason.

 

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