A major new study published this month by accountants CBW has looked at the reasons for businesses thriving or failing and found that business angels and other sources of equity funding provide technology companies with good opportunities to succeed compared with borrowing from banks.
The study also revealed that technology, media and telecommunications businesses need a team of entrepreneurs rather than just one person to be able to win through. This spreads the workload and gives the opportunity to test ideas. Half of technology companies who failed were run by one person.
The appointment of a finance director and the right accountant from the very beginning was also seen as a key factor. Accountants who can help start-ups with good advice to increase sales, spend wisely on marketing and hire the right people are seen as essential to business success.
Nyall Jacobs, a CBW partner who launched the study, said: “I wanted to understand what the magic ingredient that separated the successes from the failures. Surprisingly, perhaps, the magic ingredient was often the presence of an accountant on the board.”
Other key findings were:
- Only 7% of new technology companies secured bank loans to get off the ground
- Timing of disposals was important. Half the successful companies sold more than half their equity, effectively surrendering control within six years.
- Thriving start-ups often had six or seven directors within six years. Eight out of 10 of them replaced at least one of the original founders in the period.
- The researchers felt that founders should hold on to at least 40pc of the equity to retain a “significant skin in the game” and keep them motivated.
- They attributed the shake-out among founders to a mismatch of skills and personalities. Successful businesses had no qualms about introducing new blood when needed.
So if you are considering your own business or you have launched a company contact Vincent & Co. We can provide company secretary services, financial and management information, and of course all the advice and contacts a young business needs to succeed.