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What is business failure?

Business failure

Business failure is when a company cannot pay its creditors and is forced to stop trading.

Where have you heard about business failure?

Some of the most famous business failures have been on the high street. For example, the much-loved and historic chain of Woolworths stores suffered business failure in 2008. As did the clothing and homeware chain BHS in 2016.

What you need to know about business failure.

It's not all doom and gloom. Figures released in 2016 from the Small Business Administration (SBA), claim that about half of all businesses with employees survive at least five years and a third survive ten years or more.

So why do businesses fail? Ultimately because they don't have the cash to pay their creditors. When looking at a profit and loss statement, profit tells only part of the story. Cashflow is what's crucial. A business' profits can be substantial, but if it can't easily get hold of cash to settle its debts, then this is where it all comes tumbling down.

Find out more about business failure.

Once businesses fail, they often go through a process called administration. This is when an independent source takes over the running of the company.

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