Kiss - the adage "keep it simple, stupid" - is the message from KLegal, the law firm linked to the KPMG accountancy group, in a new survey of why small firms go bust. And the fastest-growing are the most likely to trip up.
David Mandell, KLegal's partner in corporate law, said: "The unstructured growth patterns of most small companies mean that as they get larger - often very rapidly - they are frequently wasting up to 15 per cent of their operating profits in imbedded inefficiencies, systems and costs. A firm that makes a profit of £3m could be wasting up to £500,000 a year." The most common problems facing small businesses are: growth of complex group structures which can often be simplified; joint ventures which are costly to unwind when they do not meet expectations; blundering IT systems, e-commerce strategy, bulk-purchasing methods and property portfolio management; uneconomic and poorly written contracts which cannot easily be unwound; and poorly protected trading arrangements which have not been adequately documented
According to Mr Mandell, there are a few simple rules to keep a business out of trouble: keep it simple - just a holding company and a single trading subsidiary; instead of joint ventures, go for contractual commercial trading agreements with clear exit provisions if they do not work; consider joint venture only if the relationship proves itself; undertake a root-and-branch health check of the business, evaluating internal systems, contracting methods, supplier and customer relationships, and use of company assets; review regularly and do not be afraid to make changes.
Mr Mandell added: "In London there are over a thousand companies with £30m-plus annual turnovers which can generate seven-figure profits - the potential for improvement is enormous."Reuse content