13 reasons your business could fail

Business threats must be minimised to grow a company successfully and sustainably. Identify warning signs now and act before it is too late

5) The Pareto principle

This states that 80% of a company’s business comes from 20% of its clients – a risky policy to deploy. If all or the majority of your revenues are tied up with one big contract, the alarm bells should be ringing already. Put simply, by focusing all your energies on one big-paying client you risk instant insolvency should they go under or find another supplier.

According to Tony Supperstone, president of the Association of Business Recovery Professionals (R3), the protracted collapse of MG Rover served as a wake-up call to the hundreds of smaller businesses that supplied it. “The Phoenix consortium helped drag out the break-up, giving suppliers a chance to widen their client base. Had it failed fi ve years before then hundreds would have lost out in a big way.”

In 1986, Angle’s Nichol was running a business that relied heavily on custom from oil companies. When the price of oil crashed that year from $40 a barrel to $8, his business would have collapsed too, had the management team not agreed to diversify the client portfolio a few months before.

He remembers: “The oil companies either renegotiated contracts downwards or cut you off completely. We survived because we weren’t market dependent; in the event we didn’t even have to reduce headcount.” The lesson? Look at sensible ways to spread the risk.

RED ALERT: All your eggs are in one basket without a contingency plan

DANGER RATING: 9/10

6) Unnecessary excess

As your business matures, it’ll inevitably create waste. You’ll predictably outgrow technology, but also sections of the business that are no longer core (and/or profi table), office space and perhaps even staff. If you don’t regularly prune, these unnecessary costs will impact on your bottom line. In addition, where else are you spending?

It’s a noble act to share profits with your staff in the shape of morale-building extra-curricular events but there’s a line to be drawn – especially when those profits dry up.

Take another look around you too. Is your office full of gleaming gadgetry, streamlined prototype furniture and other under-utilised flamboyances? It seems the spending bug can bite anyone. Brendan Barns started London Business Forum after attending one too many boring business conferences.

He conceived an idea for jazzy events, lushly presented with exciting and noteworthy speakers. The launch gathering was an opulent affair. He booked the Sarajevo Philharmonic Orchestra, mixing the seating positions of musicians and delegates to give guests an ‘interactive’ experience.

Financially it was a disaster. Barns failed to sell the required number of £1,000-a-pop tickets and lost £250,000 – and nearly his shirt – on the event.

“We toned it down after that and now make money from bite-sized meetings; perhaps three of four hours each,” says Barns. Excess can spread like a deadly virus through every department. Grand, fl ashy and hopelessly ineffective advertising campaigns have seriously dented the profi ts of the biggest companies.

RED ALERT: You’re not assessing overheads and regularly looking where budgets can be cut back

DANGER RATING: 8/10

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