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“People that treat their businesses as an extension of themselves… do not understand that there is intended to be a separation of your personal affairs and your company affairs, and it is one of the biggest reasons that we see businesses failing.

It’s very important to understand that your business is an asset, it is not an extension of your own pockets, and you should treat it and protect it, to ensure that it continues to survive and thrive so that it can provide for you and your family.”

Liam Bailey
Managing Partner, O’Brien Palmer


Welcome to today’s topic, 5 Reasons Why Businesses Fail, which no doubt will spark some interest in Business Owners that might be struggling right now. Everybody is feeling the pinch, and it’s your responsibility as a Business Owner to turn things around. This also includes educating yourself in areas that might feel foreign to you, but in tighter times like right now, could make a huge difference to your business coming out the other side.

I sat down with Accountant, Nathan Rigney from NGR Accounting recently, to discuss the 5 Reasons Why Businesses Fail. Please watch the video for a more in-depth discussion of each of the 5 points, and if you have any questions or concerns, particularly if you identify with 1 or more of these points, please get in touch with either myself or Nathan to see how we can assist your business.

Here are the 5 Reasons Why Businesses Fail:

  1. Not having an active relationship with your Accountant or a Business Advisor/Coach

A lot of people that find themselves having to close their businesses down, do not have an active relationship with professional people that can advise them long before there are problems. And, quite often, their accounting records are not up to date, and therefore there is no data to indicate the health of the business.

There are many legal obligations for a Business Owner that are never explained when you start your business, therefore a consistent relationship with a qualified Advisor is essential to help you run your business as you grow and take on new financial commitments and opportunities.

  1. Not understanding how your Accounting Software works
    Even though many Business Owners might struggle to read their balance sheets, it’s essential that you have a good understanding of how your software works and that you can interpret your Profit and Loss Statement, as well as learn to recognise the key indicators that your business might be struggling. Otherwise, you are literally flying blind and at risk of your business eventually failing.

  2. Being ‘the Operator’ vs ‘the Business Owner’
    Most businesses are started because the Founder was doing something that they are highly skilled at and enjoyed, which unfortunately does not instantly make you a good Business Owner when your business grows and you now need to manage inventory, people, financial and legal obligations as a Director. These are skills that you may need to acquire and “I didn’t know” isn’t a viable legal defence should your business run into difficult times.

  3. Having a lack of systems and processes in your business
    Businesses that are operating on an ad hoc basis, (eg making things up as they go!) whether it be the way they manage their cash flow, accounting systems, or day to day business operations, will quite often run into trouble and not even know it. If you don’t actually know where your business is going, it may well be that you’re heading into insolvency and requiring urgent assistance! At all levels of your business, planning is essential

  4. Not having a formal system to understand and create consistent cash flow
    From a legal viewpoint, it is at the core of your legal obligations to ensure that your business is trading solidly. You must be able to pay your debts as and when they fall due, and if you are unable to, then you are not taking minimum requirements to comply with your legal obligations.

    Looking at programs such as Michael Michalowicz’s Profit First system, can greatly assist any Business Owner who struggles to manage or have discipline with their cashflow. It is highly effective because it takes all the guesswork out of cash flow management and can greatly assist you to have the money you require to pay your accounts when they fall due. Speaking with a Profit First trained Accountant like Nathan can greatly help you to implement this system.

It’s important to know, that as a Director, it is your legal responsibility to know and understand the financial circumstances and position of your company. You cannot do that off your bank balance and outdated figures because your records are not up to date. You need reliable financial data.

And if your business is not making a profit, then getting the right advice on the changes that are urgently needed inside your business is critical to prevent your business from failing.

If you are recognising yourself in any of the points above, please get in touch with myself or any of the team at O’Brien Palmer today, or Nathan Rigney at NGR Accounting.

We can have a no-fee, no-obligation discussion around your business and situation, and potentially help you to not become a business failure statistic.

Liam Bailey, Managing Partner
O’Brien Palmer

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