The ten reasons companies are forced into liquidation

Here’s my top 10:

1   The business was started and run for the wrong reasons

Some companies are set up and then run more like a hobby than a business.  Lifestyle businesses tend to merely exist, not doing spectacularly, until something bad happens to cause the wheels to come off;

2.  I can do it all myself!

In his book, the E-myth, Michael Gerber spoke of the 3 skill-sets needed by business owners today – entrepreneurial, managerial and technical.  No one I know has all three, in the right degrees (certainly not insolvency practitioners!).  Seeking help from outside the business to plug skills gaps is a show of real strength, not weakness.  We find that businesses that lack all three skill-sets lack the cutting edge to succeed in today’s harsh business environment;

3.   Inadequate working capital

It always costs more than you’d expect to set up a business and survive the inevitable troughs later on.  It’s incredibly dangerous to rely on credit lines over which you don’t have full control.  Either way, the business owner didn’t properly assess how much money would be needed, where it’s best to get it from or what might happen;

4. Weak financial skills

Every business owner needs to understand how the business works financially.  If you don’t, you haven’t a business, you’ve got a hobby.  If you’ve got weak financial skills, there’s a good chance you probably also lack the profit motive, you love what you do and will return to stereotype ‘manager’ or technician’ roles when things get bad, digging an even bigger hole for yourself;

5.  The location is wrong

Quite simply, the business opportunity was not fully explored;

6.  Lack of planning

There’s a lot of truth in the saying ‘to fail to plan is to plan to fail’.   The unexpected does happen, particularly in our increasingly complicated world!;

7.  Over- or under-trading

Over-trading is less of an issue at this moment in the economic cycle, but nevertheless over-confidence and inadequate control can cause terminal cash problems in fast moving businesses.  More common nowadays is what we call ‘under-trading’, where business owners adopt a strategy of merely cutting costs to deal with their financial, operational and strategic problems – they do this because doing so can be the easiest decision and produces short term cash benefits.  However, we find that if this is all you do, you store up much more severe problems in the medium term.  It’s simply not possible to cut yourself to greatness!;

8. Poor marketing

The Company waits for business to come to it, as ‘it always has done’.  The business could be ‘invisible’, there’s no website, no sales force;

9.  Failing to set any strategic direction

Over time the business develops haphazardly.  It is slowly strangled by ‘unfair’ relationships with major customers, suppliers or employee groups;

10.  Inflexible business model

An inflexible business model and high fixed cost base while they may work in boom times cause significant problems in the inevitable times of bust.

Do you know of any other reasons?  If you do e-mail me – paul@midlandsbusinessrecovery.co.uk

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