Reasons why companies close down in Spain and how to avoid them
There are several reasons why companies close down in Spain, especially before their first year of activity, when we start to develop a business project it is important to take into account the planning and the reasons that can cause our corporate project to fail, below, we tell you what are the usual causes and how to avoid them.
Common causes of company closures in Spain
Business closures in Spain can be attributed to a variety of causes, many of which are avoidable with proper management and sound strategic planning. Below, we list some of the main causes of business closures in Spain and how they can be avoided:
Cause: Lack of liquidity, excessive indebtedness or poor management of financial resources can lead to the bankruptcy of a company.
Prevention: Maintaining rigorous financial control, drawing up a budget and following it, reducing unnecessary costs and ensuring adequate sources of finance are essential steps to prevent financial problems.
Lack of customers and insufficient sales
Cause: Failure to attract and retain customers, or lack of effective sales strategies, can result in insufficient revenue to sustain the operation of the business.
Prevention: Identifying and understanding your target market, investing in marketing and promotion, offering quality products or services, and maintaining excellent customer service are key to avoiding churn and underselling.
Cause: In a saturated or highly competitive market, companies may find it difficult to stand out and maintain market share.
Prevention: Differentiating yourself from the competition through innovation, quality, customer service and constant improvement is essential. It is also important to know the competition and adapt to market trends.
Lack of strategic planning
Cause: Lack of a long-term vision and sound strategy can lead to impulsive decisions or misdirection.
Prevention: Developing a strategic plan that includes short- and long-term goals, market analysis and risk assessment is essential. This plan should be reviewed and adjusted regularly.
Legal and regulatory issues
Cause: Companies may face legal and regulatory problems, such as breach of contract, tax penalties or litigation, that affect their viability.
Prevention: Having adequate legal advice, complying with local and national laws and regulations, and keeping accurate and transparent records are key measures to avoid legal and regulatory problems.
Lack of succession planning
Cause: Many family businesses fail to adequately plan for succession, which can lead to closure when the founder or principal owner retires or dies.
Prevention: Creating a solid succession plan that includes training and educating successors, as well as identifying potential leaders within the company, is essential to ensure business continuity.
Cause: Economic downturns, such as the 2008 global recession or the COVID-19 pandemic, can severely affect businesses and lead to closure due to decreased demand and financial instability.
Prevention: Diversifying revenue sources, maintaining adequate cash flow, having financial reserves and adjusting business strategy in times of crisis are ways to minimise the impact of economic downturns.
Lack of technological adaptation
Cause: Rapid technological change can leave companies behind if they fail to adapt to new trends or take advantage of available digital tools.
Prevention: Keeping up to date with the latest technologies relevant to your industry, investing in the digitisation of processes and being open to innovation are key steps to avoid technological obsolescence.
Companies close down in Spain can be largely avoided through sound business management, proper strategic planning and constant adaptation to changing market conditions. Early identification of financial problems, investment in marketing and customer service, succession planning and compliance with laws and regulations are key elements to ensure the long-term survival and success of any business. In addition, the ability to adapt to economic and technological challenges and to maintain business agility is essential in a constantly changing business environment.
The importance of professional managers for a start-up company
Advisors play a key role in the early stages of a company’s existence and play an important role in preventing its premature closure. At this early stage, businesses face many challenges, such as financial management, labour and tax law, and strategic planning. Advisors provide expert guidance in these areas, which can make the difference between success and failure.
Financial advisors help businesses establish a solid financial foundation, offering advice on cash flow management, appropriate investment and tax planning. This is essential to avoid financial problems that can lead to the closure of the company in its early years.
In addition, legal and labour advisors help companies comply with applicable laws and regulations, avoiding litigation and legal problems that could threaten the continuity of the business. They can also advise on staffing, contracts and other essential labour issues.
Strategic advisors assist in developing a sound business plan and making strategic decisions that allow the company to adapt to changing market conditions and remain competitive in its early years.
At Asesoría Orihuela Costa we offer a comprehensive consultancy service for SMEs and entrepreneurs who wish to launch their business idea with all the guarantees.