Most Common Reasons for Corporate Failure

As we have mentioned in previous blogs, the favourable economic climate will trigger a rise in limited company formation and the appearance of other smaller entities such as sole traders. It is estimated in the UK alone, nearly half a million companies are formed each year and as numbers are on the rise, it is correct to assume there will be more business start-ups in 2014.

Research by experts states that there were 479,545 companies formed in 2012 and 2013 showed an increase, with figures highlighting that 517,210 companies were formed during this period.  However, it is predicted that 1 in 3 of them will fail within the first 3 years of starting-up. Business people are aware of these alarming figures and that it is mainly down to them to ensure that their company does not end up experiencing some fatal difficulties.

As a company specialising in offering assistance with many aspects of limited company formation and other ‘after forming a company’ services, we aware of the different problems that newly formed companies might encounter that might threaten corporate well-being. We shall use this blog to discuss the different problems as such.

Poor marketing

A successful businessperson needs to grasp every concept about running a business including marketing. Organisational promotion is critically important in modern business and it is important that business people avoid blindly entering a market, as unexpected barriers will simply force their exit. Promotion is not simply advertising through the media, it involves other complex aspects of market research such as the marketing mix.

Deficient cash flow

Many business experts indicate that it is important to start up slowly. However, it is a common occurrence that business people will get ahead of themselves and attempt expanding too quickly. This is when they end up borrowing increasingly large amounts of money that accumulate in interest charges. Many small businesses end up struggling to pay off this debt, as they cannot break even since their corporate income fails to sustain the outgoings.

Planning incompetence

As professionals say, failing to plan is planning to fail. Setting up clear objectives and goals within the company strategy is extremely important as they give you company a sense of direction. Ensure you set quarterly targets alongside annual goals as a measure of assessing the corporate performance. This will also allow you to benchmark your performances with your own performances to set future targets.

Financial difficulties

Although statistics by Inside Start-ups show that the UK is the cheapest place in the world to start up a company, it is still difficult to find investors. As of 2011, the UK had 619,000 millionaires and of these, it is indicated that only a mere 5% support company start ups. Due to lack of financial support, many companies collapse within a short while. Hopefully this will alter soon as the government announced favourable tax relief for investors who invest into small to medium enterprises.

Market research

As mentioned earlier, marketing is a crucial part of corporate well-being that needs harnessing. It is important to carry out market segmentation before establishing your business. Geographic segmentation will help your organisation not only find the most suitable location but also help you establish your particular target audience. Furthermore, use modern marketing measures such as social media to facilitate effective communication. It is reported that in the UK there are over 31million people using Facebook. Embrace such communication platforms to get your brand noticed.

There are many other reasons why companies will experience difficulty within the first 3 years of starting. This can be understandable to an extent as entrepreneurs are still novices and getting used to running an organisation. However, entrepreneurs need to know that there is always help available if they finding the company start-up process difficult. If you are in this situation, contact companies like us at eformations, for we will be able to help you with any aspects concerning company formation.