Partner Article

Businesses should be allowed to ?die?

Some businesses need to be allowed to ‘die’ for the future success of stronger companies, according to the North East chairman of the Institute of Directors (IoD)

Richard Elphick says failing companies are too eager to apply for public funding to keep them propped up, which ultimately leads to a “vicious circle” of applying for loans only because they are available.

Mr Elphick, Director of space Architecture and Environment, said: “The development of Britain’s industrial might in the late-Georgian and Victorian eras was achieved with little or no subsidy, but instead by private investment. I believe that we must have a welfare state as a safety net for those that genuinely need it.”

“However, as business leaders we should change our ‘mind fix’ from looking to obtain public grants or subsidy and focus instead on how we can succeed on our own.”

He added: “If it was allowed to ‘die’ most of those in the business would learn to be more flexible and innovative and a great number of strong, small businesses would be created that could grow to be the large successful companies of the future.”

Mr Elphick believes if the business model is good enough, and the company has the right people to drive it forward than private investment should come.

Unfortunately, in this economic climate, businesses that were strong before the recession cannot last, and the money given is not in replace of investment, according to One North East, but to temporarily support the company.

Malcolm Page, One North East deputy chief executive, said: “Grants do not prop up failing businesses – every decision to support a company is based on their viability and a sound business plan.

“Grant assistance has proved particularly important in recent months due to the difficulties many firms have faced in raising finance; these companies are not failing, but have required temporary support through these difficult economic times – such as One North East’s recent Transition Loan Fund.

“Grant schemes are subject to national audit and evaluation, and value for money is always a key consideration.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .