UK Business Failure and the Reasons Why
It can be notoriously difficult to steer a business to survival and success in any part of the world. Sure enough, the data underscores that the UK is no exception to this. Here, we look at the cause of business failure and early warning signs to look out for.
How many businesses fail in the UK?
Some 25,158 registered companies were declared insolvent in England and Wales in 2023, which was the highest number seen for three decades. Even looking at a slightly longer-term picture, the 2018 to 2023 period saw around 10% to 11% of businesses in the UK fail every year.
Inevitably, for any entrepreneur or business owner in the UK who wishes to avoid their company becoming a statistic, it will be of critical importance to understand the dynamics of business, including the common reasons why UK businesses fail.
This will enable such entrepreneurs to work towards ensuring their business remains viable and sustainable over time.
What are some of the main reasons for business failure in the UK?
While a business typically fails when it runs out of money – and there can be external factors in business failure, such as recessions and pandemics – there can also be various circumstances in which a business fails due to the business owner’s actions (or lack of actions).
Here, then, are some common reasons for a business failing that any entrepreneur needs to be alert to:
- A lack of focus on certain key aspects of the business
It may often feel to the typical business owner that their life is constantly engulfed in the day-to-day minutiae of their company’s operations – the immediate-term “doing”. However, if this is the case for you, it might be easy to fall out of the habit of closely scrutinising key information.
Whether it is creditors or debtors too often being overdue, the company’s present cash position being a lot tighter than just a few months ago, or certain fixed costs being high, there are events that can so easily (and quickly) shift your business from “concern” to “crisis” mode.
- The business not having a clear goal or strategy
To strengthen your chances of success with any journey or project, it will help to have a strong sense of what your goal is, and what strategy you have underpinning this.
While many businesses begin their lives with an undeniable sense of purpose and direction, this may fade over time. In such a situation, the company may enter a state of “drift”, not adequately futureproofing itself or putting in place contingency plans for crises.
Such an absence of goals or strategy can be a recipe for eventual business failure.
- The company being too dependent on a small number of clients
As exciting as it can be for your business’s prospects when you win a big and prestigious client – and it could certainly be very good news for your turnover and profits – there can be a risk of your company getting tied up focusing on a small number of large clients.
The reality is, you may easily lose a big client in the future due to factors outside your control (such as the client gaining a new director, who may have their own idea as to which service provider they wish to use).
So, make sure you plan ahead for the day you lose an especially big and lucrative client. This will help make sure your business can survive in such a scenario.
- The business’s leadership or management being poor
If your management of your team members leaves something to be desired, this could contribute to damaging “attrition” in your employee base over time. The best talents don’t tend to stay around at an employer if they feel their boss isn’t meeting their needs and expectations.
So, it is of critical importance for a business leader to learn management and leadership skills. You may look to do this by arranging regular attendance at leadership/management training events, reading books on effective management, and simply maintaining open communication with your employees.
What are some of the ‘early warning signs’ of looming business failure?
In much the same way as human illness can manifest symptoms gradually and not necessarily suddenly, certain indicators of impending trouble can be given by your business over time, too.
These signs can include:
- Your business’s sales being in consistent decline
- The money that you spend running your business begins to exceed your profits
- Your clients giving negative feedback more frequently than previously
- A high level of employee turnover
To avoid business failure at your company, you may therefore need to be proactive in tackling both emerging and long-time issues like those cited above.
One such measure that you might adopt to help lessen your company’s risk of going out of business, is performing credit checks of the businesses you work with. This is likely to bring what may be much-needed peace of mind, as you seek to coordinate your business’s survival.
