Roberts and Cowling

D&B have announced that in the calendar year 2011 small business failures rose a staggering 48 per cent. Queensland was slightly better off with “only” a 37 per cent increase in small business failures over the same period.

The contrast is particularly relevant when it was noted that there were very few failures in the mining sector over that period and only a 20 per cent increase in insolvency activity since the start of the GFC.

SMEs with fewer than five employees were the hardest hit by far. This sector’s failure rate rose by 57 per cent in 2011. Worse still were service firms with an increase of 58 per cent and construction, which was up by 66 per cent.

The statistics here would indicate any construction or services firm with fewer than 5 employees was highly likely to fail in 2011. We would assert that very little has changed economically since the end of December, therefore these sectors remain extremely vulnerable in 2012.

So, in such a clouded environment for SMEs, what are the secrets to survival? Here are some of the key areas that R&C is focussing on with our clients and areas that we believe are crucial to every business:

1. Cashflow. Its obvious but underestimated. Business owners can have a handle on the profitability of their business, but without receiving the cash from their customers, they’ll end up the same way as every other SME failure. Cashflow forecasting can really assist to know where the troughs in cash- in are expecting and allow businesses to compensate for that early. As the phrase goes, forewarned is forarmed. 
   
   
2. Capitalisation. Is the business adequately capitalised (ie Assets covering liabilities, cash in the bank) to sustain growth or even survive contraction. If a business is suffering from under capitalisation, then not only will it not be able to take advantage of new opportunities but it will be even less able to survive any further contraction in income activity. 
   
   
3. Tax reduction. Tax can be one of the highest expenses of any business. It could be 30 per cent of net profit (anymore and the organisations accountant isn’t even trying). If a profit decrease is occurring, steps can be taken early to reduce the burden of income tax on cashflow. 
   
   
4. The P’s. Product (or service), People (employees/ management) and profit are all areas that business owners should constantly be focussed on. A problem in any of these areas will result in poor performance.

 
Focussing on these key areas (to begin with) for any business will build a stronger foundation for any future economic movement. If the economy slows further, the business will be better placed to deal with that. If the economy gains momentum, then that business will have such a strong foundation that it will outstrip its competitors in a short period of time.

If you would like to build an economy proof business and better position yourself for future upswings, talk to David or Ben at Roberts & Cowling. We can give your business the tools to stay off the D&B statistics list and work towards beating your industry benchmarks in 2012 and beyond.