FAILURE in business is no mystery. Over and over again, small and medium enterprises (SMEs) make near identical mistakes.According to CPA Small Business spokesman Colin Beavis, up to 90 per cent of SMEs make the same financial mistakes.
FAILURE in business is no mystery. Over and over again, small and medium enterprises (SMEs) make near identical mistakes.
According to CPA Small Business spokesman Colin Beavis, up to 90 per cent of SMEs make the same financial mistakes leading to high failure rates.
The cost of failing to correct these common mistakes ranges from lost profits to bankruptcy.
Many small and medium sized business are only earning wages and receive no profit return for being in business. Often the cost of these mistakes would employ one or more additional staff members. Many of the problems arise from poor business planning.
The ten most common mistakes are:
1. Insufficient capital
Most SMEs are under capitalised. They do not have any buffer for quieter times or unexpected expenses. This problem is compounded when they don’t have arrangements in place with their banks.
2. No business plan
Statistics show that top quartile businesses are twice as likely to have a business plan in place.
As the majority of SMEs do not have a business plan, they tend to be too easily distracted from the right strategic course.
3. Tendency to work in the business not on the business
Many SMEs fall into the fatal trap of believing that because they are good at what the business does they will be good at running that type of business. They are so caught up in what they are doing , they do not have time to manage the business.
4. Inadequate records
Too often the paperwork is left to last or forgotten. People cannot manage what they cannot measure. They can also get into a lot of trouble with authorities such as the Australian Tax Office.
5. Lack of profit focus
Too many businesses do not plan for profits or adequate profits and tend to focus simply on survival.
This leaves them with nothing in reserve or revenue to fund growth.
6. Cash flow management
SMEs often get into trouble because they run out of cash.
They do not differentiate between profits and cash flow and they do not understand the cycles that occur in their business cash flows.
7. Inadequate systems
Too many SMEs are run out of their owners’ heads. A lack of systems can cause differential standards and an inability to provide consistency within the business.
8. Failure to plan for taxation
The average business is responsible for approximately 10 different taxes and three to five functions to care for in each of these.
Failing to plan and manage these can put a company out of business.
9. Inadequate resource management
Successful businesses manage their resources well.
Profit simply flows from good management of resources such as time, people, plant and equipment and cash.
10. Don’t know their breakeven point
The break even point is one of the most critical pieces of information for any business.
It is only when a business owner knows this that he or she can make effective pricing and costing decisions.
Finally, too many businesses use their accountants only at tax time.
The best way to handle complex financial pressures is to get an accountant’s advice on how to structure the business through the year.
