Whilst businesses will often fail due to internal issues, such as poor management or inaccurate bookkeeping, sometimes it’s external factors that are the biggest causes of business failure. Many external factors that cause a company to fail are out of the director’s control, however some of the main risks can be avoided by putting preventative measures in place. These are the most common external causes of business failure to be aware of:
Financial Crisis
As we alluded to a second ago, unfortunately there are some instances in which a business might fail due to factors that are outside of anyone’s control. One example of this is a financial crisis, such as a recession or changes in the economic environment. A fall in economic growth often results in consumers buying less, whilst inflation increases the cost of production. These factors can all result in businesses being forced to close down.
Changes In Government Regulations
Another one of the major external causes of business failure is changes in government regulations. This may include cuts in government expenditure, an increase in taxes or the introduction of new trade agreements. Government changes can have an impact on consumer behaviour as well as disrupting trading operations for some businesses. For example, changes to trade agreements could impact a company’s ability to import or export their goods.
Natural Disasters
Although very rare, natural disasters can also be one of the external causes of business failure. This may include earthquakes, storms, floods or fire. The risk of these natural disasters may be increased depending on the location of the business, however it’s always important to put measures in place in case of an emergency. It’s important that companies take out the necessary insurance cover to protect their business in case of natural disasters.
Loss Of A Major Supplier
If a business is overly reliant on one major supplier then they are at a serious risk of failure if that supplier runs into difficulty, or in the worst case, becomes bankrupt. The disruption caused by losing a major supplier could swiftly become one of the causes of business failure, particularly if directors are struggling to find a replacement quickly. That’s why it’s essential that companies don’t become overly reliant on a single supplier and are always looking to expand their supply base and client base.
Market Conditions
Another one of the main external causes of business failure that can’t often be predicted is changes in market conditions. Markets are dynamic meaning that they are susceptible to change, for example if consumer tastes and interests change. This can cause some industries to decline while new ones thrive. Making sure that your business is able to adapt with the times is essential for preventing failure and fuelling growth.
What Should I Do If My Business Is Failing?
If you’re concerned that your business is struggling then you should consult professional guidance as soon as possible, rather than allowing existing issues to escalate. Addressing your company’s issues before it becomes insolvent will provide you with a greater number of options for moving forward. If you are concerned about your company, our experienced team at Ballard Business Recovery can talk you through the best options for recovery. Please don’t hesitate to get in touch with the team today for confidential advice.
