Why Start-ups Fail

Updated: Sep 23, 2019

Common warning signs on why start-ups fail - so you know how to tackle them.

Cash flow problems

"You may have heard a saying 'profit is vanity, cash is sanity'. This is very true. Even if a business is making lots of profit, it will be worthless if the cash isn’t there to keep the company trading.

"Remember, even being solvent on your balance sheets means nothing if you cannot pay your debts as and when they fall due."

What is cash-flow?

Customer payments terms too long

"You should make your payment terms as short as possible, but as long as practical to ensure that you remain competitive.

"Don't be seen as a soft touch. It's your livelihood, so don't worry about chasing customers for payment."

How do I chase customers for payment?

Not having enough capital to start out with

"It is vital that you are completely clear from that outset how much you will need to get the business up and running, both for initial requirements and for initial trading.

"Business premises, deposits (rent etc.), insurance, equipment, software and, of course, your personal income all need to be accounted for."

How do I write a business plan?

Not having funds in place for a contingency

"There will be a temptation to take money out of a business to fund your income needs, without enough forward planning.

"Prepare for the unexpected. Don't take everything out in Directors Loan Accounts or dividends straight away."

What are dividends?

Making naive business decisions

"Many business owners I have worked with, will spend lots of time on the 'exciting' aspects of their business, such as getting those new clients/customers and making those first sales. However, whilst getting caught up, in this excitement, they will often make business decisions based on advice from the "man down the pub".

"What works for one, may not work for another. Seek independent advice and speak to an accountant or bookkeeper."

Find an accountant or bookkeeper

Having the right team in place (or not)

"When we are starting our businesses, there is always the temptation to try to do everything yourself, things like:

· IT support

· Bookkeeping

· Secretarial support

· Advertising/PR

"Don't overstretch yourself as this will only harm your business in the long run. Look into automating certain processes, such as marketing, and recruiting staff or hiring an intern."

Six tools to automate and free up time in your business

The consequences of non-compliance

"Companies House late filing penalties, HMRC late filing penalties, Pensions auto-enrolment non-compliance, HR tribunals...

"Just some of the consequences of not non-compliance.

"I have seen potential clients, where I am the first adviser they have spoken to and some of these compliance problems are why they have decided to (belatedly) take some action. Unfortunately, it is often too late at this stage and the penalties can’t be overturned or cancelled, which will sometimes mean that the business can’t continue as it can’t afford to pay them. In some extreme situations, the business owner could even lose their house.

"Ignore nothing. Make sure you're up to speed on your legal and financial obligations – and take advice where necessary."

Read about your legal and financial obligations

Overtrading

"This might seem a strange one but overtrading can be dangerous. I've seen businesses getting excited and agreeing to provide large orders prior to working out your true costing and whether you can deliver the same quality product.

"An example I can share with you here is a recruitment agency that provided high-value contractors to their clients. The contractors were paid on 7 days terms, but the clients had 30 days payment terms. The agency had severe cash-flow problems due to the lag between paying the contractor and receiving the fee from the client, during a period of significant growth.

"Don't bite off more than you can chew."

How do I agree payment terms?

For more information and deep explanations do not hesitate to contact us on 07540 110 760 or at info@mentekandco.co.uk


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