Does profitability prevent small business failure?

cameron@coordinatedconsultancy.au (Cameron Hagan) — Fri, 24 Feb 2023 00:30:08 GMT

As referred to in my previous post , business owners have many different hats to wear to operate a business.

One hat, that is extremely important to wear, is the financial management hat. To have proper coordination within your business, requires, a focus on the financial position of the business. Your accountant is a great asset in this area as they can guide you and provide you with valuable advice and strategies to improve the business’ financial position.

According to Small Business Loans Australia , Small Businesses in Australia account for 32% of the Australian Gross Domestic Product, however, alarmingly 60% of businesses fail in the first three years. Of those that fail 50% are profitable ( Inline Partners ).

Having a profitable business alone does not equal success as other factors come into play, cashflow management is one of them. Cashflow is the lifeblood of any business. Cashflow is the amount of money coming into and out of your business. If a client is late paying, or, does not pay and the business has insufficient cash reserves then the business must look to other means of finance to pay suppliers and other creditors. This may include obtaining a line of credit/overdraft which is an additional cost for the business.

Government regulation also creates hurdles for businesses, reinforcing the need for businesses to have a coordinated set of business operations, strategies, processes and systems. An example of this is in the construction industry in Queensland where the QBCC regulates how much and when businesses can invoice their client. This becomes a juggling act for business owners between ordering materials for the work to be undertaken, sending invoices for work completed and paying suppliers for those materials within their trading terms and meeting other obligations of the business.

These are some firsts steps to take to have positive cashflow within your business:

monitoring your account receivables;
invoicing work in progress regularly;
implementing debt recovery procedures;
maintaining a healthy cash reserve; and
monitoring your expenditure relative to your income.

Implementing strategies to maintain a positive cashflow is a step towards coordinating your business for success.

The Small Business Owner’s Hat Stand

Sun, 19 Feb 2023 11:33:56 GMT

One of the first questions I ask my clients is, why did you leave the comfort of employment to start your own business? The answers vary, however, the most common response is ‘freedom and flexibility’.

Most small business owners feel the pressure to wear many different hats that each have their own unique set of challenges. There is a separate hat to wear for each aspect of running a business.

These hats include ‘run of the mill business operations’ such as inventory management, invoicing, scheduling, and most importantly physically completing the work (just to name a few). There are more ‘specialised’ hats that are required to be worn when things don’t always go to plan, or when they are unsure of their rights and responsibilities. These scenarios include issues that relate to debt collection, financial management, complying with government regulations, solving cashflow issues, creating and implementing business plans, considering advice from accountants or lawyers.

The risk of wearing all the hats in the business may lead to being burnt out and not providing value to your client or worse still making a mistake that ends up being costly to rectify. According to a recent study by capitalone nearly half of small business owners surveyed indicated that they experienced burnout. Another study by Big Small Business Survey found that the word ‘exhausted’ was continually used to describe small business owners’ mood and wellbeing.

By wearing all these hats, centralise decision making with one person resulting in a roadblock preventing the business gathering momentum.

Seems overwhelming?

Yes, it can be, but the good news is that there are simple steps that can undo the roadblock. The trick is to share the hats on the stand with others by implementing small and manageable changes one step at a time. These ‘others’ might be staff members taking on additional responsibilities or communicating with advisors on a more regular basis or talking to business mentors. But the most important step is to implement processes and procedures within the business so that all aspects of the business is coordinated to ensure the success of the business.

coordinated-consultancy

Does profitability prevent small business failure?

As referred to in my previous post , business owners have many different hats to wear to operate a business.

The Small Business Owner’s Hat Stand