Causes Of Business Insolvency

´╗┐Causes Of Business Insolvency

It is a known fact that only about 50% of small businesses continue to exist after about three years from being formed. There are many reasons for this occurrence but the foremost explanation is business failure. Business failure does not happen only to small start-ups but also to big businesses that have been set up for quite some time and have experienced a moderate measure of success.

It’s true that insolvency happens to all business but smaller businesses stand a greater risk of failure. This is due to the fact that small businesses lack the financial back up that big businesses have. Additionally, most small businesses find it hard to source finance from banking institutions due to the lack or non-availability of security to be offered.

Many businesses fail because of the lack of financial control. Managers who know next to nothing about accounting procedures and practices fail to notice that cash-flow problems are beginning to set in. A manager who does not possess accounting skill needs a competent bookkeeper to do the job. It is important to know the current cash flow of the business since it is one of the causes of business failure.

For new start ups, the business cash flow problem is something that needs prime attention. A cash-flow problem arises when the money generated from sales is not enough to cover the production cost. Some companies however do not generate income for a period of time. An example of this is … Read the rest