Tag: business failure

4 MAIN REASONS FOR BUSINESS FAILURE: INSPIRING WAYS ENTREPRENEURS AND COMPANIES FIX THEIR BUSINESS PROBLEMS

Post author By Brandon Smith
Post date January 10, 2022

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

Main Reasons for Business Failure: Introduction to reasons for failure

There are many reasons why businesses fail. One of the things a company needs to continue operations well into the future is a strong management team. Business owners should be comfortable with how each manager understands the business’ operations, current and future employees, and products.

Entrepreneurship is inherently risky; it is not for the fainthearted. Before offering products or services to customers, a company’s business model and infrastructure should be formulated, and revenue streams should be realistically projected well in advance.

In this Brandon Blog, I discuss the 4 main reasons for business failure that I have seen over the years in my role as a licensed insolvency trustee dealing with corporate restructuring and corporate business failures.

Main Reasons for Business Failure: Why do most businesses fail?

What percentages of businesses fail? About 66 percent of new businesses survive for two years or more, half survive for four years or more, and only 40 percent survive for six years or more. Many of these issues are overlooked, ignored, or neglected, resulting in them becoming just another statistic. It does not matter how many times you failed before you had a huge success. Failure teaches you what to avoid.

Building a substantial business is no easy feat. Businesses are built on value. It is best to find a way to under-promise but over-deliver in order to add value to any business.

Among the most common reasons businesses fail are:

not having sufficient funding;
having a poor management team with a lack of experience;
a flawed business model; and
a flawed marketing plan and/or a failure to market effectively to existing and potential customers.
main reasons for business failure

Main Reasons for Business Failure: Financing Hurdles

Chances are if you’ve been in business for a few months or longer, you’re experiencing some financial challenges and a lack of business funds. Marketing, sales, and customer service may require more capital. Payroll, inventory, and other expenses may require additional working capital as well.

A business loan from a bank can solve financing issues. Before applying for a loan, make sure you know your company’s financial situation. If you can’t accurately estimate where your business will be after a loan, this poor financial management will probably make your business end up worse off than if you hadn’t taken the loan.

Despite the availability of angel investors, venture capitalists, and conventional bank loans for small businesses, not all companies have the revenue stream, positive cash flow or business growth trajectory to secure financing from them. This is the 1st of the main reasons for business failure.

Main Reasons for Business Failure: Inadequate management

The managers of a business will quickly lose credibility with their staff, their suppliers, their customers, and even the general public if they are incompetent. Even if a manager receives training, mentoring, coaching, etc., before he or she starts managing people and money, if he or she doesn’t master the trade, chances are the person won’t have a successful business.

A business can fail due to poor management. Business failures are primarily caused by inadequate management, in my opinion. Management is inadequate if it does not understand the needs of the business. A lack of passion within management is a sure business killer.

It is inevitable that there will be an error the first time management delegated a major task. One person cannot handle all the decisions. The tendency is to assume that others will take care of the details while we delegate responsibility. You can use this for simple tasks like making coffee, cleaning toilets, and filing taxes. Business planning, cash flow modelling, establishing business plans and marketing plans are ineffective with this program.

Failing businesses are frustrating. It takes a lot of time and effort to build a business from scratch. It can be devastating to suddenly lose everything. Even your dreams might be dashed.

You must learn how to manage yourself and your business if you want to avoid this 2nd of the main reasons for business failure. Many business owners don’t realize how crucial it is to understand all aspects of running a business.

Main Reasons for Business Failure: Ineffective Business Planning

Having come up with your business idea and have already started your business, you should focus on developing quality relationships with your clients and employees. Understanding each employee’s strengths and weaknesses and discovering what motivates them is key. You will then be able to create a work environment tailored to the specific skills of each member of your team.

In order to achieve success, a team must have individuals who share a common goal; however, you must determine if your employees possess the right mix of qualities. Creativity, analytical skills, interpersonal skills, motivation, and communication abilities are among them.

Do you know what makes your business unique? What makes your customers choose you over your competitors? A good business plan must take all of these factors into account.

It is common for businesses to attribute their failure to external factors, such as competitors, the economy, and regulations. Although these factors are important, they are not the only causes of business failure. This 3rd of the main reasons for business failure is internal.

Businesses fail for a variety of reasons. A poor business plan, or a total lack of planning, can easily lead to it, but it is harder to prevent it completely. Business failure comes in many shapes and sizes. You could lose money, customers, your business, your product, your market, or you could fail to launch. It can all be the result of misunderstanding your product and market, caused by poor business planning.

Main Reasons for Business Failure: Marketing Mishaps

The 4th reason of the main reasons for business failure that I wish to discuss is marketing mishaps. A business needs to plan ahead for marketing. A marketing budget and return on capital should be considered by marketers and form part of every marketing strategy and business plan. Any business should allocate a budget for marketing if they hope to succeed. Getting this wrong is the 4th of the main reasons for business failure.

The success of marketing campaigns is also dependent on realistic projections for target audience reach and sales conversion ratios. In the long run, businesses that fail to understand and implement these aspects of sound marketing strategies concerning their potential customer base will be less successful than those that do.

Your business will fail if you can’t connect with your target audience. Without the ability to connect with your demographic, you are not only unaware of your potential consumer’s wants and needs, but also oblivious to how to best help them. You want to know what they want, rather than just what they need. What are they really looking for? Are they looking to evoke an emotion? Are they looking to achieve a certain status? Do your products or services help them solve a problem?

If you’re not addressing their pain points, then you probably do not understand the consumer very well. You cannot sell until you truly understand what they need. Take advantage of focus groups, market surveys, email campaigns, and direct phone calls to understand and connect with your target audience. Discover them in every detail. By doing so, your marketing plan will succeed.

Main Reasons for Business Failure: Summary

I hope you found these main reasons for business failure Brandon Blog informative. Although nothing is guaranteed, guarding against these 4 main reasons for business failure will increase your chances for business success. It will also give you the best shot at having a sustainable business model.

Are you or your company in financial distress and a debt crisis? Are you embroiled in costly litigation or a crushing debt load and need a time out in order to restructure? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to search out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

Brandon Blog Post

DEEMED TRUST CANADA REVENUE AGENCY CLAIM: CAN THE CANADA REVENUE AGENCY SUPER PRIORITY LIEN BE PRIMED IN A CORPORATE RESTRUCTURING?

Post author By Brandon Smith
Post date October 4, 2017

Deemed Trust Canada Revenue Agency claim: Introduction

Section 227 (4) of the Income Tax Act (Canada) (ITA) and the mirrored provisions in the Employment Insurance Act (Canada), create deemed trusts against the property of a tax debtor. When a tax debtor doesn’t remit employee source deductions or HST collections, a deemed trust Canada Revenue Agency claim arises.

Deemed Trust Canada Revenue Agency claim: Parts of the Initial Order

In every Court-supervised restructuring under the Companies’ Creditors Arrangement Act (CCAA), there are several standard provisions in the Initial Order issued by the Court. In addition to the stay of proceedings provision, there’s also the need to make sure that the insolvent company has:

sufficient debtor in possession (DIP) funding to survive the restructuring process;
the Directors incentivized to stay in their capacity; and
the services of the Court-appointed Monitor and its legal counsel properly retained.

The normal way of achieving this is to give Court-ordered priority charges. Examples are for the borrowing authority, the Directors’ Charge and the Administrative Charge. This is so the lender, the Directors and the Court-appointed Monitor and its legal counsel know that there is a source of (re)payment.

Priority charges are made when certain affected parties may not be represented in Court. Therefore, a standard “comeback clause” is also in the standard Initial Order. This allows any affected party to make a motion before the Court to amend such Court-ordered priority charges.

Deemed Trust Canada Revenue Agency claim: The Canada North Group Inc. decision

A decision was recently released by the Alberta Court of Queen’s Bench in Canada North Group Inc. (Companies’ Creditors Arrangement Act), 2017 ABQB 550. The Court case reviewed several issues, but the one I found most interesting was one specific question. Can Court-ordered priority charges under a CCAA restructuring prime the deemed trust Canada Revenue Agency claim?

The decision goes through a very interesting analysis as to whether a deemed trust Canada Revenue Agency claim provides Her Majesty with the ownership of the property of the company or is merely a secured interest in the property. Section 227 (4) of the Income Tax Act (Canada) and the mirrored provisions in Employment Insurance Act (Canada), create deemed trusts. Section 37(2) of the CCAA explicitly preserves their operation. Specifically, can Court-ordered priority charges under a CCAA restructuring prime the deemed trust Canada Revenue Agency claim.

Deemed Trust Canada Revenue Agency claim: Section 227(4.1) of the ITA

Section 227(4.1) of the ITA states:

“Extension of trust

(4.1) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law, where at any time an amount deemed by subsection 227(4) to be held by a person in trust for Her Majesty is not paid to Her Majesty in the way and when provided under this Act, property of the person and property held by any secured creditor (as defined in subsection 224(1.3)) of that person that but for a security interest (as defined in subsection 224(1.3)) would be property of the person, equal in value to the amount so deemed to be held in trust is deemed

(a) to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property of the person, in trust for Her Majesty whether or not the property is subject to such a security interest, and

(b) to form no part of the estate or property of the person from the time the amount was so deducted or withheld, whether or not the property has in fact been kept separate and apart from the estate or property of the person and whether or not the property is subject to such a security interest

and is property beneficially owned by Her Majesty despite of any security interest in such property and in their proceeds, and the proceeds of such property shall be paid to the Receiver General in priority to all such security interests.”

deemed trust canada revenue agency claim

Deemed Trust Canada Revenue Agency Claim: What is the nature of Canada Revenue Agency’s interest?

The Court raised, amongst other things, the following two questions:

What is the nature of Canada Revenue Agency’s interest?
Does the statutory secured status deemed trust Canada Revenue Agency claim elevate it above a priority charge?

Canada Revenue Agency relied on the trust provisions in the Fiscal Statutes. It argued that it holds a proprietary and not secured interest in the debtor’s property. Key to its position under its deemed trust claim is the concluding phrase in s 227(4.1) described above.

Canada Revenue Agency asserted that these words take it beyond a mere secured creditor. They stated it was so because they do not just consider the Crown to be the owner of the interest. Rather, the statute says that it is the owner. However, previous decisions in Canada have found that the deemed trust is not in truth a real one as the subject of the trust cannot be identified from the date of creation of the trust.

The Court also stated that, in principle, the deemed trust is similar to a floating charge over all the assets of the tax debtor. This is because the tax debtor is free to deal with its property. When it does, the trust releases the disposed-of property and attaches to the proceeds of sale. To find otherwise would freeze the tax debtor’s assets and prevent it from carrying on business. The Court found that this was not a result intended by Parliament.

The Court concluded that Canada Revenue Agency’s interest is a security interest, not a proprietary interest.

Deemed Trust Canada Revenue Agency Claim: Can the statutory deemed trust Canada Revenue Agency claim be raised?

The Court stated that it may seem that certain sections of the CCAA conflict with the deemed trust sections in the Fiscal Statutes on a strict reading of only the above-noted section of the ITA. That is what Canada Revenue Agency did to support its interpretation.

However, the Court went on to say that one must not read these provisions in a vacuüm. The Fiscal Statutes, the BIA, and the CCAA are part of complex legislative schemes that run concurrently. They must be read in their entire context. The aims of the statutes and Parliament’s intention kept in mind.

The Court agreed with earlier cases that the purpose of the CCAA is to let the debtor to continue to carry on business and, where possible, avoid the social and economic costs of liquidating its assets. The Court also stated that the CCAA legislation is remedial in the purest sense. It provides a means whereby the devastating social and economic effects of bankruptcy or creditor initiated termination of business operations can be avoided. It allows for a Court-supervised attempt to reorganize the financial affairs of the company.

Deemed Trust Canada Revenue Agency Claim: The Supreme Court of Canada on the Indalex deemed trust

Following the Supreme Court of Canada decision in the Indalex deemed trust decision, the Court agreed that the securing of the DIP facility is a key aspect of the debtor’s ability to attempt a workout. The harsh reality is that commercial imperatives govern the lending practices of the lenders, not the interests of the policy considerations that lead the government to legislate in its favour.

The Court also found that the priority charges aid in the restructuring process. Certain examples of such priority charges are:

Interim DIP lender’s charge providing both an incentive and guarantee to the lender the recovery of funds advanced during the restructuring.
The priority charge in favour of Directors is important. The charge keeps the captains aboard the sinking ship. Without the benefit of this charge, directors might abandon the ship.
A priority charge for administrative fees is critical to a successful restructuring. It is the only protection the Court-appointed Monitor and its legal counsel have to make sure that their bills are paid.

Further, the Court found that the Section 11.52(2) of the CCAA codifies and elaborates on priority charges. Previously, the Court used its inherent jurisdiction in granting priority charges. The Court found that this shows Parliament’s intention that secured creditors’ interests could be eroded if the Court felt the need.

Deemed Trust Canada Revenue Agency Claim: The Court’s Decision

The Court stated that Canada Revenue Agency’s position that the deemed trust Canada Revenue Agency claim cannot be primed, fails to reconcile that the goal of the Canadian insolvency restructuring regime and Parliament’s continued commitment to facilitating complex corporate CCAA restructurings, even if it requires erosion of security.

For this and the other reasons listed above, the Court determined that the CCAA gives the Court the ability to rank the priority charges ahead of the deemed trust Canada Revenue Agency claim and the resultant security interest.

Deemed Trust Canada Revenue Agency Claim: Is Your Company In Need of Financial Restructuring?

The CCAA’s aim is to help business survival and avoid the multiple traumas caused by business failure. The Ira Smith Team have decades of experience in both complex personal and corporate financial restructurings.

If you or your company cannot survive without a restructuring, contact Ira Smith Trustee & Receiver Inc. NOW for a free consultation. You are just one phone call away from getting back on the road to financial health and reducing your stress levels, Starting Over, Starting Now.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

deemed trust canada revenue agency claim

Brandon Blog Post

TARGET CANADA CLOSING: $5.4 BILLION AND COUNTING

Post author By Brandon Smith
Post date January 20, 2015

Target Canada closing was announced on January 15, 2015, when Target Canada Co. and related entities commenced court-supervised restructuring proceedings under the Companies’ Creditors Arrangement Act (“CCAA”). The CCAA, which is a Federal statute normally used for the restructuring of insolvent corporations with debts over $5 million, in order to preserve all or a portion of the business and jobs. This time, rather than being used for a restructuring and turnaround, it is being used to provide for an orderly liquidation.

What went wrong? Target Canada is an indirectly wholly-owned subsidiary of the United States-based retailer Target Corporation. Target Corporation was founded in 1902 as Dayton Hudson Corporation, and is one of the largest retailers in the United States of America. You would think they had the experience to avoid such a disaster. It seems that everything went wrong and right now Target Canada estimates that this business failure will result in a loss of $5.4 BILLION!

The mistakes made by Target Canada and its US based parent seem to be very basic. The mistakes made leading to the Target Canada closing can be summarized in the following 9 point list:

1. Walk before you run – Target Corporation’s leadership saw expansion into Canada as an opportunity to extend the Target shopping experience to a broader group of people and thereby expand its revenues and profits. They also believed that there were significant opportunities in the Canadian market that made their strategies well positioned to succeed.

However, rather than starting off with a few stores in select Canadian markets, they began in 2011 by purchasing the net amount of 135 store leases from Zellers Inc. for a net purchase price of $1.6 billion. Perhaps a more modest start would not have put so much financial pressure on Target Canada from the very beginning.

This is reason number one leading to Target Canada closing.

2. Failure to implement your plan in a reasonable period of time – Although Target Canada entered Canada in 2011 through the purchase of the leases, they first undertook necessary renovations and leasehold improvements before Target Canada opened at many of the former Zellers locations under the Target banner. The first stores did not open until March 2013 – more than 2 years after the decision was made to acquire the Canadian locations.

This obviously gave Target Canada’s competitors a long lead time to plan for the Target invasion. The major competitors include Wal-Mart, The Bay, Sears, and also major supermarket chains like Loblaws, electronic retailers like Best Buy and Future Shop, and home improvement stores like Canadian Tire, Home Depot, Rona and Lowes.

This is reason number two leading to Target Canada closing.

3. Miscalculation of Demand for your Product – The opening of that many stores resulted in market densification – particularly in large cities served by more than one Target store – and reduced the impact of many of the new store openings. There were too many stores for the marketplace.

This is reason number three leading to Target Canada closing.

4. Poor Supply-Chain Management – Target Canada encountered significant supply chain issues. Stores were often: (i) out-of-stock for important merchandise, resulting in consumer dissatisfaction; and (ii) over-stocked on other merchandise, necessitating discounts to manage the inventory and impairing operating margins. These supply chain issues created a poor first impression. Therefore, many potential customers appear to have returned to or maintained the shopping practices they had before Target’s entry into Canada where such problems didn’t exist.

This is reason number four leading to Target Canada closing.

5. Tinkering with a proven model – Canadian consumers expected Target Canada to follow Target’s U.S. prices, which is a significant source of loyalty to the Target brand. Rather than match or reflect the U.S. prices in Canada, its pricing model was designed to compete with other similar Canadian retailers and included generally higher prices than Target’s U.S. stores. This appears to have limited Target Canada’s ability to distinguish itself in the competitive Canadian retail marketplace. It appears to me that Target Canada did not attempt to distinguish itself on a superior customer experience and did not attempt to distinguish itself in its pricing model.

Many of the Target Canada suppliers, either directly or through related entities, supplied merchandise to both the Canadian stores and Target Corporation’s U.S. stores, and many of those cross-over vendors have operations in Canada. Couldn’t Target have used its buying clout to not have Target Canada’s pricing model to be the same as its Canadian competitors?

This is reason number five leading to Target Canada closing.

6. No online presence – Need I say any more? Any home-based business owner knows you need to have an online presence today.

Although Target US has an established and successful online retail business, Target Canada elected to focus on the build-out of the physical stores and improving store operations, and did not prioritize the establishment of an online retail business for Canadian customers. This turned out to be a significant competitive disadvantage as the retail market moves beyond traditional bricks-and-mortar stores. By the time Target Canada woke up, it was too late.

This is reason number six leading to Target Canada closing.

7. Too little too late – Beginning in Spring 2014, Target Canada added internal resources and consulted at great length with a variety of strategic, operational and financial advisors in an attempt to improve Target Canada’s operations and identify strategies that could make the Canadian operations viable in the long term. Target Canada could not identify an option that would result in TCC breaking-even in the next five years. Were any of these financial viability studies conducted before the net spend of $1.6 billion on leases in 2011? Would not those same studies have identified what senior executives should have done to have a successful Target Canada launch?

This is reason number seven leading to Target Canada closing.

8. Not understanding the marketplace – In 2011, Canada had a population of 34.4 million. In comparison, this was slightly smaller than the population of the State of California at the same time. The financial returns for Canadian stores were expected to be in line with historical returns for U.S. store openings. This typically meant losses until the completion of the first full year of store operations, and profits thereafter. Target Canada never made any money. For the 2013 and 2014 fiscal periods, Target Canada’s losses totalled $3.6 billion (before interest and taxes).

This is reason number eight leading to Target Canada closing.

9. Management – Based on the above, clearly Target management miscalculated the success of an expansion into Canada out of the US. No doubt other US retailers who may be considering an expansion into Canada, must look at this expansion failure before embarking on implement their own expansion into Canada.

This is reason number nine leading to Target Canada closing.

At the time of filing, Target Canada had 17,600 employees. Because this is an orderly liquidation and not a restructuring and turnaround, those jobs will not be saved as a result of Target Canada closing. No doubt these job losses will create financial hardship for many of these employees’ families. To its credit, Target US has established a trust fund for payment of the Target Canada obligations to its employees. This trust fund is in addition to the proceeds from the sale of the Target Canada assets.

The lessons to be learned from the Target Canada closing story is that every business, regardless of size, must not only have a properly vetted business plan before implementing any business strategy, but management must have carefully studied and tested it to ensure as best as possible that management understands the marketplace it wishes to operate in and that the implementation of the plan will be successful for the business.

Ira Smith Trustee & Receiver Inc. acts for both debtors and secured lenders, in the performance of financial and viability assessments for financially challenged businesses. The earlier that we are consulted, the better the chances are that we can construct and assist management in implementing its plan to return to financial health without the need for receivership or bankruptcy proceedings.

Contact Ira Smith Trustee & Receiver Inc. before your business problems lead to your business closing. The earlier you begin to deal with debt, the more options you’ll have. We approach every file with the attitude that financial problems can be solved given immediate action and the right plan. Starting Over, Starting Now you can live a debt free life.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

Note: The facts contained herein regarding Target Canada Co. (“TCC”) and Target Corporation, and the expansion of Target Corporation into Canada was derived from the Affidavit of Mark J. Wong, General Counsel and Secretary of TCC, sworn January 14, 2015 in support of TCC’s CCAA application.

Tags Bankruptcy, business failure, CCAA, Companies’ Creditors Arrangement Act, financial hardship, financial viability, orderly liquidation, receivership or bankruptcy, restructuring and turnaround, restructuring of insolvent corporations, starting over starting now, Target Canada, Target Canada closing, Target Corporation, Zellers