It is estimated that while 80% of new start-ups exist for at least 12 months, more than half of them will fail in the subsequent 5 years. While the percentage of small businesses failing in the first 5 years is very high, it is comforting to know that most successful businessowners have one or more business failures to their names.
Many would argue that having a business fail is one of the most important ingredients to be a successful business owner. It is not the failure that defines you as business owner, but rather the way you respond to the failure and adversity. Here are a few tips before embarking on your next adventure:
- Reflect on what went wrong
The ability to earnestly reflect on decisions in your business that might have contributed to the failure of your business, is essential. Identify the area where you believed you have erred. Be honest and ruthless in your assessment. Was it the product? The marketing? Did I target the right market? Did I have the right business plan and strategy in place? Was I realistic in my expectations? Does running a business suit my lifestyle and the needs of my family? These are all critical questions to ask and there may be more.
- Seek out objective advice and opinions
Don’t just rely on your own opinion, ask colleagues in the industry, take advice from a trusted business advisor. Speak to your family and, if you had employees, ask them what they thought of the business. Talk to your accountant about ‘what went wrong’. If your accountant is unable to tell you their views or provide any useful feedback, change your accountant. Be robust in understanding why your business failed. You will not regret the raw wounds these discussions may expose.
- Evaluate any new adventure
Then, through the lens of ‘what went wrong’, evaluate any new adventures. Be slow to act – rushing off to the next best thing may not be in your best interest. If needed, see if there are ways to consolidate your finances, protecting your assets to the best of your ability. If you are unsure of your next step, rather seek out new employment while you look out for your next business adventure.
- Don’t repeat the mistakes
Learn from your mistakes by not repeating it. What’s done is done – it belongs to the past and should not be brought back into the future. Sometimes, practice doesn’t make perfect. If you make the same mistake over and over again, it soon becomes an ingrained habit. Be deliberate in not repeating your mistakes – no matter how tedious it sometimes might feel.
In terms of the legal implications when a business fail, the process is actually straight forward. The first step is that a company will enter a process called ‘liquidation’ (a sole trader through bankruptcy). During this process, creditors of the business will be able to collect on debts (or parts thereof) by taking or liquidating the assets of the business. In case of liquidation, after the company sells off or liquidates its assets and gives the proceeds to creditors, the creditors cannot come after individual members and attempt to collect on remaining debts.
We strongly advise readers to seek legal assistance when you suspect the business is unable to pay its debts as they fall due or if you experience stress and volatility in your business. There are several avenues available to businesses which must be explored before entering into voluntary administration, liquidation or bankruptcy. Our team of lawyers at Frank Law can assist you in this respect.
Finally remember that having a successful business is a journey, not a destination.
If you have further questions, please contact Philip van den Heever at firstname.lastname@example.org
This is not legal advice.