Christopher Andersen
Written By Chris Andersen
Director & Licensed Insolvency Practitioner
July 21st, 2023

The adage that ‘ignorance is bliss’ does not apply to a failing business. If you’re unable to pay your bills and are struggling from one month to the next, then you’ve already taken an important step by reading this article. You’ve acknowledged the situation and you’re looking for help. 

In this guide, we’re going to take a look at a few of the different reasons why your business might be failing and introduce some tried and tested business rescue strategies to help you get back on track.

Why is my business failing?

First things first, it’s important you understand that you are not alone. Roughly one-third of all businesses fail within their first two years, and 50 percent have collapsed within five years. However, just because you’re experiencing some problems now, it doesn’t mean your business is destined to become another statistic. 

The leading cause of business failure in the UK is a lack of cashflow, which is responsible for four out of every five company closures. However, there are also plenty of other pitfalls that await small and medium-sized businesses in the UK. The leading causes of failure include:

  • Not having sufficient capital at the start of the business.
  • The absence of a well-developed business plan and a failure to properly research the market.
  • A failure to price products and services properly or consider all the necessary factors when determining prices.
  • Being overly optimistic about the sales the firm will achieve and the money required to achieve them.
  • An inability to recognise or accept the weaknesses in the business and an unwillingness to seek help from others.

Although these are some of the most common reasons for businesses to fail, many more potential pitfalls await. In many cases, when faced with these common problems, business owners lose confidence and give up. However, by seeking expert advice and being willing to battle through the tough times, you give your business every chance of being saved.     

What steps can I take to save my failing business?

(1) Identify the cause of your decline

That might sound like a very obvious step to take, but this is the most important part of the rescue process. You cannot turn your failing business around if you’re unable to identify the true cause of the trouble you find yourself in. Many business owners are too close to the business to look at the situation objectively. That’s where the assistance of a qualified and experienced third-party, such as a turnaround practitioner, can help. 

A good starting point is to identify a time when your profits were up and sales were strong. When did that change and what was going on inside and outside of the business at that time? It could be that a new competitor entered the market and started eating into your sales, or perhaps you reduced your marketing spend, or did you try to build on your success by diversifying into new markets? Once you narrow down the reasons why your business is suffering, you can then focus on how to address the issue head-on.   

(2) Make sure you understand your target market and your ideal customer

When your business is struggling, you need to strip away all the unnecessary detail and get back to basics. You need to ask yourself two questions: ‘how well do you know your target market’ and ‘what do your customers want?’ The more you know about your target market and your ideal customer, the better you’ll understand where to focus your efforts and resources.  

As a business starts to grow and become more established, it’s not unusual for it to lose sight of the customers who led to your initial success. Instead of listening to your customers and offering the products or services they need, you start to create products and services that you want to offer. 

If you’re receiving negative feedback from your customers and sales have fallen, it’s time to engage your customers to understand what they truly want from your business. You can then align your product model and marketing plan with the wants and needs of your customers and develop a strategy that makes sure those desires are met.   

(3) Manage your cashflow more effectively

Managing the cashflow in your business is something that you have to work on every single day. Either you, as the business owner, or a member of your team, should be sending out invoices, creating payment reminders, chasing late payments, running credit checks on prospective clients and taking action against late and non-payers on an ongoing process. This will help to improve the stream of cash coming into your business.

Unnecessarily long payment terms or consistently slow or late payers are one of the biggest drains on a company’s cashflow. In some industries, it’s common to have payment terms of 60, 90 or even 120 days. During that time, outgoing payments still have to be made, which can run the business dry. Creating a cashflow forecast will give you insight into what’s coming in, what’s going out and when. You’ll then have a snapshot of exactly how much cash is in the company accounts and when there’s likely to be a shortfall. You’ll then be able to take steps to boost your cashflow or reduce your costs before you’re left out of pocket.  

If you’re in the midst of a company cashflow crisis or identify a cashflow shortfall on the horizon, there are a number of steps you can take to resolve it. Invoice finance, which is a short-term form of funding that can free up the cash tied up in your unpaid invoices, is a route an increasing number of businesses are choosing to take. 

(4) Talk to your creditors

If you’re struggling to make payments to creditors such as suppliers, finance providers, landlords and HMRC, the temptation might be to ignore them and hope the situation will go away. It won’t. Many business owners see their inability to make payments as a sign of failure, and often feel too overwhelmed to approach the issue head on. As a result, they ignore all contact from their creditors, which inevitably makes matters worse.

If you have payments that you’re struggling to make, the best approach is to talk to your creditors, explain the situation and discuss your plans to repay your debts. If you have a positive relationship with your creditors and have always made payments in the past, they’re likely to be more understanding. Even powerful creditors like HM Revenue & Customs can put Time to Pay arrangements in place that allow you to repay your tax debts in instalments over a period of up to 12 months.  

Your creditors will be aware that they’re likely to receive more of their money if your business continues to trade than if it is left to collapse. For that reason, they may be prepared to give you more leeway than you expect.   

(5) Reduce your overheads

If your business is struggling, it’s vital to cut your overheads and eliminate unnecessary spending however you can. Whatever the size of your business, you can always cut costs, even if you think you’ve been running a tight ship. 

A few steps you can take include:

  • Making sure all purchases are approved by you and your partners.
  • Not drawing any petty cash from the bank unless it’s essential.
  • Reviewing all expense claims made by staff personally and rejecting any that are not necessary.
  • Ask every supplier for a review of their prices to see if you can get a better deal. Most suppliers would rather reduce their prices than watch you go elsewhere.
  • Ask if you can get a rent reduction, and if not, see if you can pay monthly rather than quarterly to ease the pressure on cashflow. 
  • Question whether you or your employees need their company car. 
  • Think about whether you can sell any non-essential assets to raise cash.
  • Cut all overtime costs. If you need additional man-hours, hire temporary workers at lower rates.
  • Keep minutes (if you operate a limited company) or notes (if you’re a partnership or sole trader) of all the decisions you make.

(6) Consider alternative sources of finance

Borrowing more money when you’re struggling to make payments might sound like a recipe for disaster, but if the underlying business model is viable and you simply lack capital, funding could provide the cash injection you need. 

There are now many more finance options available than just business credit cards, overdrafts and bank loans. These days, invoice finance, asset-based lending and merchant cash advances have all become popular methods of business funding. The advantage is that many of these alternative funding types can be accessed quickly and are available to businesses with less than perfect credit records. 

(7) Explore your company rescue options

If you believe your business is viable and are committed to working hard to save your business, there are a number of company rescue options that could be appropriate for you. These formal insolvency procedures can be accessed by contacting the turnaround practitioners here at Company Debt. We will help you consider your options and explain the process and the potential outcomes of each procedure.

  • Company Voluntary Arrangement (CVA) – If you’re facing constant pressure from your creditors and are being threatened with, or are already subject to legal action, a Company Voluntary Arrangement (CVA) could provide you with valuable breathing space. 

A CVA is a legally binding agreement between a limited company and its creditors to repay all or some of the money it owes in instalments over a period of one to five years. The first step is to draw up a repayment proposal that your creditors will vote on. If at least 75 percent of the creditors (by value of debt) agree to the terms of the proposal, the CVA can be put in place.

  • Administration – Another option available to the directors and owners of limited companies that cannot pay their debts is to put the business into administration. The administration is managed by an insolvency practitioner, who effectively becomes the new chief executive of the company. It is their job to rescue the insolvent company, if possible, by restructuring its financial affairs. 

The period of administration can last up to 12 months. During that time, the administrator will explore all the options available to keep the business afloat and a stay will be put on all creditor legal action. 

Professional assistance to save your struggling business

At Company Debt, we have vast experience of turning around the fortunes of failing businesses and protecting the interests of the company directors throughout. For a confidential, no-obligation discussion of your circumstances, please get in touch with our team today.