According to a 2015 study, the principal challenges for small business owners arise not in their first year of business, but in subsequent years. Key findings reveal a link between business owners’ top concerns and common reasons for business failure.
Businesses with less than 20 employees and turnover under $20 million are typically considered ‘small to medium’ in Australia. For the majority of their owners, time is at a premium and most of it is spent on operational matters.
Top four concerns
According to the study, the majority of business owners spend little time assessing business performance, planning improvements or strategically pursuing growth opportunities. However, most are conscious of the need for this.
The top four concerns reported were:
- Cash flow and declining profits – These are the major concerns across all businesses, irrespective of industry or size, especially given current economic conditions.
- Business planning – Just 23% of owners prepared a business plan, and, only 18% had a plan to improve their business value. Only around half have accurate and timely financial reports.
- Succession planning – Most small businesses are heavily dependent on the owner. 58% surveyed believe their business could not survive without them but few had taken steps to provide for an accident or ill health. 74% of respondents had no succession or buy-sell agreement in place.
- Protecting business and family assets – Just 20% of business owners thought that the sale of their business would be able to fund their retirement. While 60% of business owners had wills in place, few (30%) had estate plans or enduring powers of attorney and only 40% had key person insurance.
Why do small businesses fail?
It is a common belief that most new businesses fail in their first year. However, the data indicates that almost 75% survive their first year but continue to struggle after that. Key reasons are a lack of strategic and business planning, limited business and financial management skills, and where external professional advice is taken, it is not centred on the business owners concerns and needs. Many business owners naturally do not have the required skills in business and financial management. However, just 61% surveyed had a trusted advisor and four out of ten didn’t know who to turn to for advice on improving financial measures and business planning. Without these skills, many businesses with great potential fail and business successes can be accidental. As Dorothy from the Wizard of Oz aptly put it “If you do not know where you are going, any road will get you there.”
Good planning and execution pay off
Appropriate planning and execution leads to planned growth, which in turn leads to more confidence, revenue and expansion. Improved profits lead to an increase in the value of the business, which helps business owners fund their next stage, whether it is expanding their business, a new venture or self-funded retirement. Engaging the right external adviser to work collaboratively with you to plan and implement the necessary improvements can make a big difference. Please contact your local Accru office to find out how we can assist.
This research was conducted by B-Star for Accru Page Kirk Jennings, Perth. If you would like a copy of the detailed report, please email Bruce at firstname.lastname@example.org.