The UK is a melting-pot of commercial and executive successes, being home to a wide variety of established and emerging industries – and industry leader on the global stage in many cases. The UK is also a unique champion of the start-up, with small-to-medium enterprises (SMEs) representing 99.2% of all business in the UK.
But starting a business is not a success story for everyone. In fact, according to recent data published by the London School of Economics, one in seven businesses in the UK are at risk of imminent closure at any one time. There are also suggestions that newer businesses have a 40% success rate over a three-year period, suggesting that the majority of new businesses are doomed to failure. But what are the specific risks that these businesses face in this regard?
Getting an internal auditor to manage your finances can help you make informed decisions with precision. They will also help you assess your risks and improve your processes efficiently.
Financial Struggles
The first and foremost cause for business closure relates, simply enough, to finances. Many businesses struggle to balance the books after a few years of trading. This is a common story, as those first few years are often the most intensive for investment.
Investment at the start of a business, before profits are truly secured, represents an existential value in comparison to their profits – a ratio incomparable to that of established businesses. Sometimes a business invests heavily before finding its feet, resulting in negative cashflow and the prospect of insolvency.
Poor Market Differentiation
As markets become crowded with new entrants and new offerings, it can be harder and harder to stake a claim to your own piece of turf. This is often where companies fall flat, as they struggle to differentiate their offering from the dozens of competitors occupying the same space.
Without innovation, without a strong brand identity, and without a unique offering that differentiates from competition without merely undercutting it, many businesses will struggle to stay afloat.
Poor Management
A business may appear to be ticking all the right boxes on paper, but still make a lacklustre showing in their market. This speaks to the possibility of poor management – an often-overlooked variable that can cost business owners dearly.
Even with the right hires, and a dynamic and creative team with great cohesion, business development can falter. Without the right managers in the top jobs, inefficiencies can mount, and work continue uncoordinated. Poor managers can even inspire raw talent to leave, weakening a business’ position in the medium term.
Lack of Resources
Hitting the right balance for investment can be tricky for a business, especially when capital is hard to come by. But underinvestment can be just as dangerous as overinvestment, and could potentially lead to a comprehensive failure to compete.
Digital resources are key for efficiency and productivity; investment in tools is nothing short of essential. Investment in product is something else entirely; a business may not have the funds to scale quickly enough, resulting in a loss of consumer interest.
