The main causes of business failures

Each year in France, thousands of companies are declared bankrupt. This term means that they become unable to finance their operating costs and pay their suppliers.

Too limited a demand

To bring in money and finance its operations, a business must have a demand to meet and therefore customers. The main cause of bankruptcy is linked to a lack of customers. This can have several distinct causes.

A business management or loyalty problem

At first, the problem may be internal to the company. If the company is unable to prospect for new customers or fails to retain them, it can quickly find itself in difficulty. We must quickly review internal processes and identify weaknesses to remedy this.

An economic crisis or a downward trend

But sometimes the decline is market wide. For example, it could be a crisis or simply a decline in interest in the product or service offered by the company.

We can also note the case of a technology transition as we have had with digital which redraws a market. In this situation, companies must rethink their model.

A bad business plan

Speaking of model, the error sometimes comes from the creation of the company, during the development of the business plan. This document which makes it possible to precisely define the offer and the mode of operation of the company and unfortunately sometimes sloppy, even absent. It is however essential to establish it with precision because it is this file which makes it possible to estimate precisely the financial viability of a company.

It is strongly advised not to neglect this step by calling on a chartered accountant such as SNA to write it.

Too rapid growth

If the goal of any business is to make money and therefore to grow. But if it is too fast, it can be harmful or even fatal for a business. For example, in the event of a visit to a TV program at a prime time or quite simply by making "the buzz", demand increases sharply. We must then be able to reorganize production and delivery or face a horde of dissatisfied people.

Dispute management can then occupy teams all the time and cause the company to go bankrupt.

Organizational problems

Without going as far as an unsustainable increase in orders, generic organizational problems can also lead to defaults.

Non-optimized internal processes can have several regrettable consequences:

  • Productivity too low
  • Lower quality of deliverables
  • Motivation of falling teams
  • Information loss

By adding up, all of these small malfunctions can generate too much of a drop in quality, excessively high operating costs and ultimately an inability to compete.

Payment terms

The last of the main causes of business bankruptcy are payment delays and in particular for SMEs. Large companies sometimes have rather long delays in settling their outstanding invoices.

For some large contracts, this can cause SME failures, which then do not have enough cash flow after having incurred costs.

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