The Australian Centre For Business Growth recently released a report, which tried to understand why so many Australian SMEs fail. We have combed the data in order to deliver a helpful overview. It comes down to five key factors. This will hopefully empower you to help you think broader and brighter. Because your SME doesn’t need to become just another statistic.
1. Lack of leadership and strong management
In the report, 25% of respondents cited CEOs as a core reason for failure. A CEO needs to understand their responsibilities and role as a company leader. While larger corporations can manage a short while without leadership in place, the same can not be said for small businesses. The dynamics between a small number of employees can quickly turn sour without the containing presence of a strong leader. As CEO of Beyond Merchant Capital Larry Prosser explains, “A CEO’s core role lies in defining the company’s vision. They need to ensure good governance and a culture of learning. And then make sure that all operations constantly point in that clear direction.”
2. Poor planning
It’s easy to plan for growth. But often what’s missed, is planning for the unforeseen. Your business exists in a world with extraneous factors like politics, interest rates, climate change, and global trends. 13% of respondents hadn’t taken these into account. This meant a downward spiral for many promising SMEs. Once the worst happens, what will you do about it? The way you choose to respond is vital. In 2016, Toyota CEO Jim Lentz personally handled its PR crisis when several million cars were suddenly recalled. He really threw himself into the situation by answering queries online, personally handling customer relations and other aspects of the fallout. Had he relied on the chain of command to see things through, the company may not have recovered as well as it did.
3. Sub-par sales skills
Another reason why so many Australian SMEs fail is due to mediocre sales skills. No matter which way you spin it, your business is selling something. So sales skills are tantamount to your business’ success. Customers are usually very intuitive; they can sense an inauthentic, incompetent or dishonest salesperson. This often boils down to simple communication skills. Luckily it is a skill that can be honed. There are many sales training programs that can help SMEs perfect this area. And is well worth the investment.
4. Mismanagement of financials
14% of respondents admitted that their SME failed due to poor management of financials. This often came down to the management of working capital as well as profitability. This seems to be much more relevant than the financial skills regarding a balance sheet or strategic finance, planning or analyzing. Cash flow is like air for business. It requires careful micro-planning but also a strong view of the bigger picture. Traditional lenders can be a helpful resource for cash flow but the time it takes to get finance is often the difference between sink or sail. Fintech lenders like Beyond Merchant Capital, however, provide working capital in as little as 48 hours. A life-line for many SMEs.
5. Weak structures
Another reason why so many Australian SMEs fail comes down to structures. In the report, 11% of respondents admitted that failure occurred due to poor governance structures, sour partnerships or problems with family. First and foremost it is essential that the business has the correct governance structures in place. A CEO should consult with professionals on tax requirements, company structures, proprieties etc. Similarly, internally, the chain of command should be clear. The left hand should always know what the right hand is doing. And there must be complementary operational systems in place to ensure optimal productivity at all times. A simple example is how a company can’t do business if there is no Wi-Fi in the building. It’s often the little things that make a big difference.
Running an SME is hard. It all starts with an idea and then you need to make it happen. The most important thing you can do as an SME leader is seek advice. You are not expected to know it all. So identify your weak spots, hire up or empower yourself with new knowledge. You don’t need to be another statistic that proves why so many Australian SMEs fail. You just need to identify your blind spots. Then improve on them.
Speak with a lending specialist today about funding the growth of your business.