Failing to plan is harming newer australian SMEs

Company Insolvency     |     April 14, 2016

There is no debate that owning a small-to-medium business is a popular career option for many Australians, with the number of people employed in SMEs dwarfing those working in other sectors. In fact, research from the SME Association of Australia (SMEA) has found that a staggering 99.7 per cent of all actively trading businesses in the nation have fewer than 200 employees.

It’s no wonder so many of our citizens take that path in their career – the same study noted that Australia is considered the second-easiest country in the world to start a business, second only to our neighbours across the Tasman, New Zealand. That perceived ease in starting up, however, is in some ways matched by the number of businesses encountering money problems leading to insolvency each year.

In the second half of 2015 alone, over 25,000 Australian businesses failed according to Dun and Bradstreet, suggesting that while it may be easy to start a new organisation, it’s not quite so easy to keep it alive. So what is it that’s causing so many of our businesses to be wound up?

A problem of strategy

The Australian Securities and Investments Commission (ASIC) conduct regular surveys into business performance, or in this case the lack thereof. While the most common reason for business failure was given as inadequate cash flow or high cash use, a concerning 42 per cent of companies report poor strategic management as a key factor in their collapse.

In many cases it’s a combination of issues that lead to a business failure. With such a high proportion of organisations failing due to a lack of planning and management, however, you could be forgiven for wondering how many may have survived had they considered the ways in which they could have improved their operations.

Formulating an effective strategy for your business is particularly crucial for new enterprises. It’s a process that starts with identifying areas where you might be at risk, and working with experts to optimise cash flow and make sure all of your financial obligations are being met.

The danger of going it alone

As mentioned, keeping a business going is rarely as easy as getting one started. It requires constant attention on performance and strategy, aspects that can quickly become overwhelming for those who choose to be a ‘lone wolf’. Keeping operations running smoothly often depends on the support of a number of people, from both inside and outside your organisation.

Along these lines, a survey from information services group Wolters Kluwer found that 26 per cent of respondents felt their refusal to seek professional advice was a significant factor in the failure of their business. Not reaching out for help when it’s needed most is seen by CEO of Wolters Kluwer Asia Pacific Russell Evans as a perilous shortcoming for many Australian SMEs.

“It’s not surprising a small business owner will micro-manage, especially in the early stages of their business life, but this should not be at the expense of being open to advice from trusted professionals,” he said.

Being the owner of a new business can be an exciting time, but it’s possible that a lack of experience and forethought can quickly find you facing financial difficulties. If you are unsure about the security of your financial position, or feel like you could be in danger of insolvency, don’t hesitate to reach out for help. Speak to Corporate Lifeline today, and find out what your options are for the future of your business.