Four Reasons Big Businesses Fail

The success of any business is the result of a carefully managed matrix of factors.

When big businesses collapse at this level it’s usually down to several failings, and once they run into trouble it can spell a slippery spiral downwards. Often companies don’t anticipate their trajectories until it becomes too late. Then, rather than taking pre-emptive measures to mitigate the problems early on, it becomes a salvage operation as they go into administration.  

Let’s look at a few of the most common business failures that are responsible for driving the big companies into the ground, and how these can be avoided.

1. Unprofitable Business Model

One of the biggest oversights at top level is the failure to keep up with industry innovation, and the inability to adapt to the needs of the changing market. This has tripped up many big brand names and put them out of business almost overnight. 

A case in point was the demise of Blockbuster and the rise of Netflix. Sky-high overheads took their toll as Netflix took the market, and with profit margins based on penalising customers with late return rental fees, Blockbuster soon closed its doors to its remaining customers.  

With careful analysis and reporting, insolvency practitioners are hired to support business directors by taking a market overview. By forecasting on performance indicators, they can help directors to make informed decisions that ultimately define the future of the business. 

2. Poor Financial Management

When a company admits to long-standing financial difficulties, ‘corporate recovery’ is a process that takes practical steps towards restoring a business to profitability. If financial problems are left unaddressed for lengthy periods, the damage to the business can be irreparable, along with the reputations and the livelihoods of those employees associated with them.   

British Home Stores (BHS) is a prime example of a household name casualty that suffered at the hands of poor financing. With the closure of over 160 high street stores and 11,000 jobs across the UK, they went into administration under criticism for mismanagement and failure to protect pension schemes of their staff.

3. Rapid Growth and Over Expansion

A company’s vision of growth can be measured by different outcomes, whether it is to simply increase profits, expand locations or gain a larger market share. The elements to consider for a successful expansion depend on careful planning and consideration.

At this stage in the evolution of a business, a great benefit of contracting insolvency practitioners is that they do all the homework and find the best solutions that benefit the company vision.

One of the more recent examples of an expansion that went wrong, was the closure of Jamie’s Italian restaurant chain – it shut down 22 of its 25 restaurants due to ongoing profit loss and the lack of appetite for the Jamie Oliver experience.

Business restructuring early on can mean the difference between survival and failure. This is an area that insolvency firms can advise on, and draw up a plan of action that can avoid the unfavourable process of liquidation.  

4. Lack of Effective and Strategic Leadership

Bigger corporations set an industry benchmark and are usually a good indicator of a healthy market.

When bad decisions are made it is always costly. Filtering down through the ranks, it destroys trust and loyalty until it eventually affects the customers, who become disenfranchised. 

Strategic leadership requires strategic planning. By engaging insolvency specialists, directors receive expert advice from an impartial standpoint, helping to steer the business in the right direction.  

Myspace is a great example of a failed business due to poor leadership. When bought out in 2005, (at a time when Facebook was growing fast) the social platform quickly took to monetising the site with invasive advertising that destroyed the user experience. Facebook had a different vision back then and dominated the market. It was the beginning of the end for Myspace.

What Else Can Insolvency Specialists Help With?

With business insight and analysis, independent insolvency specialists are a lifeline for companies looking to turnaround their business when navigating financial difficulties. With almost 60% of all businesses failing within the first five years, getting the right help and advice can make a huge difference.  

Experience proves that the sooner companies seek support, the better outcomes for their survival. 

Typical services include:

Help and advice with growing business
Improvements in cash flow and profits
Positive and practical steps to restore a business to health and profitability
Advice to directors and general business advice
Insolvency solutions including: corporate recovery, reconstructions, business turnaround, administrations, liquidations and solvency planning.