Let me be direct. Most of the Nigerian-founded businesses I have worked with in the UK that failed in year three did not fail because of the market. They did not fail because the product was wrong. They failed because the founder treated the business as temporary — as a side project that would become permanent once it started working — and that mentality shaped every structural decision they made or avoided.
I am talking about businesses that never opened a proper business bank account. Businesses whose contracts were handshake agreements because "we're all family." Businesses whose accounts were filed from spreadsheets that mixed personal and business expenses. Businesses that had clients but no terms of service. Businesses with five-figure monthly revenue and no registered insurance, no formal employment contracts, no scalable pricing.
"Year three is when the informal arrangements that carried a business through year one and year two start to cost more than they saved."
— Usman Ayankoya MAPMWhy year three specifically
Year one, most founders are still grateful. Everything that works is exciting. The informal systems hold because there is not enough volume to break them. Year two, revenue grows and the founder starts believing the informal systems are fine. "We made it through year one like this. Why change now?"
Year three is when the informal arrangements that carried the business through year one and year two start to cost more than they saved. A client dispute surfaces with no contract to refer to. A tax bill arrives that the founder did not plan for because the accounts were not separated. A key employee leaves because there was never an employment agreement — and takes client relationships with them. A bank declines a loan because the business has no formal trading history separated from personal finances.
The one decision that separates the businesses that survive
The businesses that make it through year three make one specific decision before they feel they need to: they formalise the business properly before the informal arrangements become expensive to unwind.
This is not a complicated decision. It is a simple, deliberate choice to treat the business as a real company from the beginning, not from the moment it starts causing problems. It means:
- A business bank account separated from personal finances from day one
- A proper accounting system — even QuickBooks Self-Employed — from the first transaction
- Written contracts with every client, supplier and employee, regardless of the relationship
- A Companies House registration before the business needs it, not after
- An accountant engaged before the first tax year ends, not after the first penalty letter arrives
- Insurance that covers the actual services being delivered
Every business we have helped rescue from informal collapse had the same profile: a founder who was excellent at their core service, had genuine market traction, and had delayed the formal infrastructure because they believed formalising too early was unnecessary overhead. The formalisation cost was never the problem. The cost of formalising after informal arrangements had calcified was always higher.
What to do this week if you recognise your business in this
If your business is in year one or two, the answer is straightforward: formalise now. The cost of doing it properly while the business is small is a fraction of the cost of unwinding informal arrangements at scale.
- Book thirty minutes with an accountant — not to file accounts, but to set up the right structure before anything needs filing
- Separate your business and personal bank accounts today if they are not already separated
- Have a solicitor review your standard client agreement — one hour of legal time is cheaper than one contract dispute
- Register your business at Companies House if you have not already — the protection of limited liability is worth more than the filing fee
If your business is in year three and you recognise the informal arrangements described here, the answer is the same — formalise now — but do it with a professional who can help you unwind what has already built up without creating new problems in the process.
Usman Ayankoya MAPM is the Founder and CEO of Hawkish Group Limited. He has worked with over forty businesses across the UK and Nigeria since 2016. To speak directly with the team about your business structure, contact info@hawkishgroup.com or call 0116 296 3459.