Business Start-Ups – Tips to Make Your Company a Success…
New businesses are the lifeblood of our economy and if only we could encourage more entrepreneurs to start their own Company then our financial system would almost certainly be better off. In this article I provide my specialist advice on the most common reasons for business start-up failures and how to avoid them being placed into Administration or Liquidation.
Now you might be thinking “How can an Insolvency Practitioner help me start my own business” or “what qualifies an Insolvency Practitioner to provide specialist advice on business start-ups” well it should be noted that unfortunately, the majority of Companies that go into Administration or Liquidation are in fact new companies. Therefore, I have experienced many occasions when a new business has become insolvent (and had to be closed through an insolvency process) and have taken note of the main failings with the hope that better education on these reasons can result in more business recoveries should you, or your client, experience company debt.
The Reasons For Business Failure and My Advice…
There are of course many reasons why start up Companies can often fail however all of these can be combated with careful planning and specialist advice. Please find as follows my top 5 reasons for business start-up failures and my advice on how to guard against them:-
1. CASH FLOW – It should be noted that a Company is considered insolvent if it cannot pay its debts as and when they fall due therefore if proper cash flow forecasts and comparisons to actual sales are not done you run the risk of legal action from your creditors if debts become unpaid. As advisers to your clients you have a responsibility to help with this as this can often be a daunting task to them. Your client should also work out what funds they need and then source sufficient finance to support their forecasts. For a summary of our finance options go to our Finance Page.
Credit searches on their customers should also be done because should they suffer a bad debt then they might not have sufficient cash to survive. Whereas, knowing the likelihood that their customers would not pay, before they start trading on credit terms with them, could help guard against any losses.
2. SALES – It is fair to say that if they do not achieve the level of sales they need to make a profit then they are in hot water before they’ve even started. Therefore, ensure that they are prepared to try many different ways to generate sales, to spread their risk. Suggest they consider networking, building a website (and optimising it to perform in internet searches), send flyers, advertise, offer promotions, join social media groups and approach potential customers directly. It will not just happen for them, they have to make it happen.
3. COSTS – Surprisingly many business start-ups fail at the stage when they are growing rapidly, as a result not keeping a proper track of the increased costs experienced to achieve the increased sales, this is called over trading. This is another area where you could help therefore you may wish to offer to work out the extra costs proportionately and decide upon what level of sales makes their operation the most efficient, which will ensure their profit margins are at least retained, but hopefully bettered.
4. TAXES – Unfortunately Company directors often use HMRC as a source of unsecured loan as they consider their trade creditors to be more vital to ensure continued trading. However, this is a mistake, as HMRC issue approximately 60% of all Winding up Petitions and will therefore not wait should their accounts fall into arrears. If they cannot pay all of your taxes when they fall due you must ensure that they pay HMRC whatever they can afford as this will show their willingness to reduce their debt.
5. STAFF – Management fallouts and general staffing issues are a large cause of insolvencies. SME’s also place more importance on each staff member therefore they need to be confident that they have the right staff for the job to stay ahead. You are unlikely to have a lot of influence here but it is worth highlighting to them and recommending that they seek legal advice if any employment law issues should be experienced.
For more advice on this topic please review the rest of our site, or give me a call on 0800 612 6197.