Reasons Business Fail

SV partners have just released their quarterly report identifying the most common reason why administrators are appointed. The top 4 reasons in order are:

1. Inadequate Cashflow or High Cash Use

As the saying goes – Cashflow is King. Cashflow is simply a product of the following, conversion of WIP or inventory into a sale (how many days stock sits on your shelf), collection of those sales (debtor days and trading terms), margin/profit on each sale and payment terms for suppliers (Creditor days). It is important for all owners to understand these key drivers of your business. So do you understand yours? Are you measuring yours regularly? If not, why not? Holmans can help. In fact, our standard Key Performance Indicator reports outline all these items and if you are a client of Holmans already have this key information. Holmans can help you understand their impact on your business and how to improve them.

Importantly, if you are delaying the payment of the tax man or your employees super, this is an important flag that you don’t have your cashflow under control and need to take immediate measures to address the issue.

2. Poor Strategic Management of Business

Everyone makes mistakes in business, including sometimes pursing areas of the business we shouldn’t. The key is to do the following:

  • Research before you jump. Understand what expansion, releasing a new product or entering a new market means to cashflow and profitability. Often expanding, even if profitable, means having to fund that growth and negative cashflow for months or years. Do the numbers.
  • Be nimble. Monitor the success of the new strategy and change tact early if it is not working.

3. Poor financial control, including lack of records

All too common a problem of small business. Unfortunately, many owners don’t review their Profit and Loss Statement (monthly side by side preferred), or they only get around to updating their records once a quarter. That would be like driving to Brisbane using an old street map…. You are driving blind and have no idea of important changes. If you run a business, understand it is just one of those necessary evils…. You must update your numbers early and often, and to understand what they mean. Use a bookkeeper to free up your time if you are too busy to do yourself. See your accountant to understand in plain language what the figures all mean.

4. Trading Losses

No one goes into business to make losses. So if your business is making a loss, then you need to do something immediately to change it. Don’t delay or put your head in the sand if it is not generating the results you expect or require. The consequences can be catastrophic.

Importantly, don’t become a statistic – take control of the above and ensure your business succeeds. Many business owners feel like they are tackling all the pressures of business alone. However, it doesn’t need to be that way. You have professionals right there at your fingertips that can help your business succeed and prevent you from becoming a nasty statistic. Give your accountant the chance to make a difference, let them help you take control of the above.

Need help and want to know more? Call Holmans for assistance on (07) 5430 7600 or send us an email.