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Causes of Business Insolvency in The UK

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Written by:

John A Waller

Director

Reviewed: May 8th,2021

Causes of Business Insolvency in the UK

Business insolvency in the UK, especially during the Coronavirus COVID 19 pandemic, engages a diversity of factors. Common issues though prevail. The main culprits are:

  • Insufficient working capital;
  • Business Cash Flow Issues
  • Poor Business decisions.

However, it is often impossible to blame an individual or issue in a business failure. However, business insolvency is avoidable, and company directors may seek support from firms like HBG Advisory. 

Please check out ‘The Team at HBG Advisory‘ and ‘Free Insolvency advice for my company‘.

Check out ‘Financial tsunami ready to hit UK Economy’. 

Business insolvency – Common issues

It is common that new companies have a 50% failure rate in the first year.

Risks in the first years remain and are part of the long-term issues businesses face, while directors learntherefore  how to handle the risks in the long-term. – Those who do not fail. 

There are several reasons for this:

  • Inadequate resources to cover the costs of building a viable business: Some companies require capital and time many businesses don’t have.
  • Insufficient knowledge of business practices: Even the most basic business practices are essential. Entering into a contract, for example, without being aware of contractual obligations, is often a grave mistake.
  • Insufficient expertise in commercial business: Directors managed the company so that management increased the risk.
  • Competition: Many companies significantly underestimate their competition, which leads to the failure of companies.
  • Excessive expenditure, usually while striving to build business: Throwing money at business development, can be fatal.
  • Clients’ inability to pay due to money or carry out business projects: One of the most common reasons for business failure is attachment to another failed company.
  • Financial management: Even profitable businesses can fail through inadequate financial management.
  • Impractical business ventures: joint, high-risk ventures usually incorporate costs to businesses which put the company in debt.
  • Credit situations: Borrowing money from future revenue is a typical reason for business insolvency.

Significant causes of business insolvency

Insolvency happens however due to the loss of:

  • Credit for the company to trade;
  • Capital;
  • Revenue.

A business considering insolvency can be a painfully slow process. Unfortunately, companies are aware of their difficulties, though they fail to promptly and worsen the position of the company’s creditors.

The problems are protracted and exacerbated by a tangle of situations, including credit problems, waiting for payments that never materialise, bills and similar disasters. Problems compound and multiply. These common problems are resolved, if allowed, in sudden, unexpected crises. So check out our‘Business and Company debt help’. 

The impact of corporate insolvency

Corporate insolvencies can occur in levels of difficulty:

Direct personal liabilities to business owners depend on the circumstances. Any breaches of the law, though, will therefore create an adverse event much worse.

Professional help is the only way to deal with the threat of insolvency.

Therefore, please contact the team at HBG Advisory today for a ‘Free meeting with HBG Advisory‘.


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