Business Media Articles (Archived)

Reasons for business failure - the warning signs

We have experienced tough economic conditions in the past year and, whilst there is some evidence of a return to confidence, we are only seeing just the briefest of green shoots appearing. The purpose of this paper is to look at areas that are potential warning signs.

Loss of Market Share
This can be either because demand for a product or service has diminished or because competitors are increasing their market share. This must be an important warning sign.

Mistakes of Insufficient Funding
This is often because of an inadequate level of share capital and the following questions should be asked and if an answer is "Yes" to any of them, then there must be a question on the future long term viability of the business:

Are VAT contributions overdue?

Are suppliers chasing very hard for overdue payment?

Are PAYE contributions overdue?

Are there any outstanding writs?

Are there any outstanding statutory demands?

Are there any outstanding litigation matters concerning faulty goods or other matters of significance?

Is the company failing to prepare cashflow statements covering the next three to four months?

Are there any assets in the balance sheet, that should be written down?

Is there an increase in the number of credit notes and if so why, as this may be due to a reduction in quality of the product or possibly delivering previously returned stock that is not up to standard?

Probably the most important area is the quality of the management and do they have a history of making mistakes due to inexperience or lack of proper financial disciplines?

Insufficient attention to cost control within the business.

Lack of sufficient emphasis, control and top level involvement with selling and ensuring that profit margins are being monitored.


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