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Debtor Finance Blog

Three tips on avoiding the great Australian business failure


There are something like 2,141,000 businesses currently operating in Australia. Of these, around two million turn over less than two million dollars per annum, qualifying them as small businesses.
Australia is full of smart small business people with great ideas and more energy than a motivational speaker on his third Red Bull. They’ll tell you that the key to business success comes down to focus and organisation, a great business culture, the right product or service, having a healthy cash flow and more besides. And of course meanwhile Australia is awash with Business Coaches, Business Consultants, Consulting Business Coaches and more books on the subject of business success than you can shake a thesaurus at.

So why is it that the Bureau of Statistics tells us that of the roughly two million small businesses in Australia, around fifty percent of them will go down the toilet within their first four years of trading? That’s a million small businesses that will go down the gurgler before they really even get a chance to hit their straps. They don’t necessarily go broke, but they cease to exist. So in the lucky country – and we’re still the lucky country, surely -  how do so many business owners get it so wrong so soon? Do they just have such rotten products, lousy business cultures and lack of focus that they go wheels up in next to no time? It doesn’t seem right that so many business owners could simply have no idea what they’re doing.

In the industry I’m a part of, the nature of my work means that I get to speak with a lot of small business owners. About a month ago I was at a business function and had an interesting conversation with a woman who worked for one of the big banks in their recovery department, dealing with corporate clients who, if memory serves me correctly, turn over more than twenty million dollars or so per annum. Of course curiosity drove me to ask what, in her experience, were the most common causes of business failure in this turnover category. Her answer was depressingly unsurprising – bad business partnerships, and businesses living beyond their means. The woman went further to speak about the terminal damage that a partnership breakdown can have on a business, and how common it is to encounter Directors who flatly refuse to reduce expenses.

With these scary facts in mind, let’s take a quick look at a few of the most common areas where small businesses run off the rails that can ultimately lead to failure.

Living beyond your means

Are you getting around in a prestige car? Not only is there really nothing wrong with that, but I can’t call the kettle black in this instance because as a business owner back in my twenties and thirties, I did, too. But I’m glad I got it out of my system! Of course if that’s what you’re into and your business can genuinely afford it, then knock yourself out and drive whatever you want. But if you’re still zooming around in a fancy car and taking expensive overseas holidays while running a business that isn’t profitable…well, I shouldn’t need to paint you a picture. There’s no future in it. I might hate buzzwords but I love a good saying when it really rings true, and one of my favourites is ‘only dogs’ balls and poor peoples’ money are always on show’. When you really have the means, do whatever you want, but making a show of it before you make a go of it is asking for trouble.

Bad partnerships

I’ve always been very clear about how I feel regarding business partnerships, in fact if you want to see the full story (click here to read). But I know that it’ll take a lot more than just a quick blog piece to put you off if you’re really determined to go into business in a partnership. If you must do it, remember that a successful business is rarely built on a quick chat and a handshake. Be sure that all partners are perfectly clear on their roles within the business, who does what, and what the exit strategy is if worst comes to worst. Remember that partnerships gone bad are a major cause of business failure in Australia – you need to be very certain and clear about every facet of a partnership before you jump in.

Bad accounting

Or perhaps I should just say ‘not enough accounting.’ This is another subject that I go on about quite a bit, but it bears repeating – if you’re only seeing your accountant at tax time, either insist on seeing him or her more often, or get a new accountant! As a business owner, you navigate and plan via your numbers, and with inaccurate figures or simply no figures at all, you are effectively running your business blindfolded. A good accountant should be working with you to do much more than just sort out your tax, and as a business owner your business plan (you DO have a business plan, right?) should be based on budgets that need to be checked regularly against your sales figures, so that you can adjust your goals and possibly your sales targets if necessary. Far too many small businesses in Australia go to the wall having found out far too late that they were in dire financial trouble – trouble that could have been avoided simply through decent accounting.

And those are just three of the top reasons businesses go bust. Sadly, of course I could pretty much write a book on why small businesses in Australia fail, but this is a blog rather than a book, so I’ll just keep it to these three for now.

I don’t think that any of these represent great revelations, and that’s perhaps the toughest fact to face here; a lot of businesses go to the wall because of really stupid, seemingly obvious situations that could easily be avoided. Objectivity is the key. If you are flat out working in your business rather than working on your business, or if you’ve gotten to the stage where you just can’t seem to see the woods for the trees anymore, it might be time for you to simply pause, take a step back and consider things from a fresh point of view. It makes a lot more sense than being part of the fifty percent of small business owners who don’t.

Wishing you all the best for your week in business.