UHY Hacker Young | Chartered Accountants

How to fail in business – and how to succeed

8 October 2019

As another high street name takes its final bow, we take a timely look at the underlying causes and remind ourselves of the fundamental factors which can make the difference between business failure and success.

Don’t blame the market

On 23 September, Thomas Cook, the oldest name in the travel industry, went into liquidation, the highest profile insolvency since Carillion. The company had been in business with various owners since 1841. Its crash left 600,000 customers stranded abroad, 550 branches closed and 9,000 employees looking for alternative employment. The repercussions are colossal. There are photos of Spanish beaches almost empty of tourists, local restaurants and hotels facing failure in their turn, and a repatriation bill for ATOL and the government running into hundreds of millions of pounds.

Commentators have been quick to blame the decline in the package holiday for the collapse, a theory underpinned by the demise of a competitor, Monarch, two years earlier. But statistics do not support this hypothesis. Package holidays are currently enjoying a boom, representing about half of foreign holidays bought by Britons and totalling 18.2 million as opposed to 14.3 million in the previous year. The causes appear instead to be an accumulation of bad business decisions leading to unmanageable debt, combined with an inability to compete with more agile market entrants.

One mistake is a misfortune – a string of them is carelessness

It is not unusual for business managers to make mistakes, indeed expensive failures are a necessary corollary of innovation. Some ideas fail, others succeed. They have to be tried out. A business should be robust enough to withstand the occasional failed experiment; no business can stand a whole succession of them. So that is the first lesson to be learned.

Learn from your competitors

The second is: know your competitors. New on-line only travel agents easily undercut Thomas Cook, with its vast network of town-centre offices. It may be bad news for the High Street, but travel has gone the way of many other supplies and services – on line, and woe betide any company that tries to work against the trend.

Keep innovating

So the third is innovation, which means staying ahead of the competitors. This is a hard trick to sustain. A successful innovation will soon be copied by others. So innovation has to be a constant iterative process, but one in which risks are carefully appraised and managed.

Your people and your customers

The fourth is people.  Businesses need to commit to continuous learning and employee development. The staff members have to feel that they take responsibility for the success of the business. There should be a culture of sales and customer service being everyone’s business. This factor did not necessarily contribute to Thomas Cook’s failure, nevertheless nothing is more vital than the customer’s experience, nothing more fundamental than ensuring that customers happily return to buy more again and again, and recommend the experience to their friends.

Watch the cash

The fifth is having your finger on the numbers, and the larger the business the more important this is. Reporting systems must flag up variances from expected results as early as possible. Of course businesses fail because they are unprofitable, but running out of cash is almost always the last straw. (In Thomas Cook’s case there had been a trading loss of £1.5 billion in the six months to March, but the final collapse occurred when no finance could be raised to tide the company over the lean winter months). The lesson is to keep a close eye on the cash flow.

All of this appears to be stating the obvious, and so it is, but the recent spate of huge company failures illustrates that these fundamental principles of business success are often lost sight of, so they merit reinforcement.

As an international network of accountancy firms we at UHY have a wealth of experience and understanding of virtually every kind of business. We can help you to make a success of your business. Just contact me at A.Hulse@uhy-uk.com or complete our contact form.