Why Businesses Fail?

Being a partner in the insurance and surety industry for over 30 years now, I’ve seen many construction companies grow to be successful businesses over time.  Others, start successfully, but things begin to unravel over time and there can be multiple reasons for the failure but a common denominator for failure is uncontrolled or under financed growth.

We have seen many times that management decides to substantially increase sales from one year to the next believing they have the ability to be more profitable.  It can be done, but the right pieces to the puzzle are needed including management, performance, cash flow and proper bidding of upcoming work.

In other cases, some companies will expand their territory or add additional types of work to increase growth.  But, competition, subcontractors, climate and regulations change as you go further from your home base.  In one instance, a client was making good money year after year but decided to branch out across the state.  He hired project managers at a high cost trying replicate the results he achieved in his home office.  But, he quickly realized without his personal oversight of projects, he was losing control of his operations.  Jobs began to fall behind, managers were underperforming and project owners were withholding payments. Unfortunately, the end result was company with great potential for success, was wiped out financially, and went out of business.

Beyond uncontrolled growth, there are other causes for business failure such as character issues, poor management and accounting problems.  We will try to pick and discuss one or more of those issues including their relationship to surety over the next few months.