What causes a business to fail?

Information provided by Kidwells Accountancy on our website is for informational purposes only. For bespoke advice, call 01432 278 179 or email info@kidwellsaccountancy.co.uk to learn more about what is best for your business.

There is always a risk in running a business. Over half of business start-ups fail within their first three years.  So, what can you do to keep your business afloat?  

Insufficient Cash Flow 

Many new businesses fail because there isn’t a contingency to keep them going. A slowing of cash flow can happen at any time due to bills, client payment delays or credit problems. Even if your business is doing well, it’s essential to keep enough cash aside to cover expenses such as payroll, inventory, production, taxes, and other essential costs.  


As with keeping cash flow up it is essential to keep debt down as one affects the other. Borrowing money to fund your start-up is likely to increase the risk of your business failing; one month of poor profits could be all it takes to cause your debt repayments to exceed your overall income. 

Knowledge of business practices 

A good business practice plan is essential. It can help your business to become more competitive, increase sales and revenue, improve your employees’ skills, reduce costs, and more.  

Ensure you have a thorough understanding of business processes and procedures. Some things are easy to get wrong, too – entering a contract without being fully aware of the contractual obligations is a common, but what could be a costly, mistake.  

Price Correctly 

When you are in competition with other businesses it could be a risky venture to lower your prices to gain customers. Your business may grow but your profit margin will drop. Ultimately, it could affect the quality of your products or services. 


New businesses are created daily. Competition isn’t always a bad thing; it challenges you to improve your business. Don’t ignore other businesses whether they’re new or old and be prepared to make changes. Focus on retaining your present customers who will ensure your business remains unaffected even if competition increases.  

Relying on a few clients or customers 

If you rely on only a small number of clients or customers for most of your profit you face a risk if they choose to go to a competitor. If this is the case, you need to ensure the retention of these important customers and focus on acquiring new ones to provide income should you lose a big client.  

Lack of customer knowledge 

Know your customers and what they want because they can help you get more leads and more business. Providing a good service results in strong customer relationships and new sales through positive word-of-mouth recommendations.   

Poor Accounting 

Unless your business is accounting it is usually not the most favourite task of a business owner. Budget planning is essential for any business whatever the size. If the accounts are not up to date and correct, how do you know your business is financially sound? For peace of mind, it would be worth getting help and advice from an accountant on start-ups and further down the line. 

If you fail to keep track of your company’s expenses, even a small downturn in profits could be enough to put the business into insolvency. 

For help and advice on setting up your business contact the team on 01432 278 179.

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Disclaimer: Information provided by Kidwells Accountancy on our website is for informational purposes only. It is provided in good faith but we make no guarantee of any kind regarding the accuracy, reliability, or completeness of any information on our site. We always recommend businesses seek independent legal and financial advice before working with us or acting on any information on our website.

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