The causes of company failure are varied, but a 2011-12 report into corporate insolvencies by the Australian Securities and Investments Commission (ASIC) found that of these businesses:

  • 44% suffered from poor strategic management;
  • 40% fell victim to inadequate cash flow or high cash use;
  • 33% went under because of trading losses.

To outline some of the real challenges that businesses face, we find that Small to Medium Sized Businesses have limited resources and also lack the expertise required to overcome these company failure problems that arise.

Therefore, we believe that it is useful to share some pragmatic ideas on how small to Medium Sized Businesses can overcome these issues that can lead to business failure or insolvency.

  1. Strategic Management – The need for Preparation, Adaptation and Innovation for growth and sustainability

The fact that 44% of insolvent businesses suffered from poor strategic management, should be a wakeup call and warning for SME’s. This grim but real statistic, outlines the importance and need for strategic management and forward thinking for SME’s.

The business environment is constantly changing and in more recent times this is occurring at an accelerated speed. The pressure to provide better products and services; at lower and lower prices or a new product/service is constant. Some examples of these factors include disruptive new technologies, consumer trends, government policies, globalisation and an ever increasing competitive landscape. These factors are having a dramatic impact on established business models.

In an ever changing environment, driving business growth and providing business sustainability, requires constant effective decision making that not only allows businesses to respond to change, but also anticipate change. Therefore, for small and medium businesses, it is critical to have the benefit of an external specialist in reviewing and developing the right business strategy moving forward and also review the strategy objectively on a regular basis. This enables a business to be prepared for the changing business environment, as well as growing the business profitably and sustainably through a holistic business improvement approach.

  1. Cash Flow or High Cash Use – Show me the money

Understanding your financials is critical in a small to medium business. For most businesses Cash flow is the single biggest ongoing issue that it may face. This issue can be managed by proper Financial Control which should be performed by a competent Financial Controller/CFO, areas of focus that can alleviate these issues might include the implementation of a Cash flow budget/forecast and strategic cash flow management.

For small to medium businesses often it is increasingly more economical and affordable to engage a competent outsourced Financial Controller/CFO for this critical function.

Quite often, fine tuning your business model will work wonders, this technique will help by fixing any fundamental cash flow issue causes. Some examples of these improvements are:

  • For trade services, it can be highly effective to change the mix between domestic clients who pay on completion and business clients who pay on terms (or worst still, are not able to pay you due to their own financial problems). This technique can lead to a great difference an improvement in the reduction of time in which you will receive payment;
  • Adapt or change part of your sales channel into an Online Shop. The implementation of this change will result in you receiving payment prior to delivering your goods/services. This can result in improved cash flow and the reduction of bad debts.
  1. Trading Losses – Managing Business Performance

Trading Losses can be present in a business due to many factors. What is important to focus on once again is good business strategy and its implementation. This coupled with effective Financial Control and Best Practice Business Management can be greatly beneficial and sometimes crucial in any business.

For a Small to Medium Sized Business these needs are ever more important as there is an increasing need to identify any skill gaps that need to be alleviated to allow for business success. This need can often be outsourced, this allows for a cost effective solution which can also be implemented on a part time/casual basis, reducing the need for higher costs which are related to having permanent employee in this role.

In a nutshell, a pragmatic and innovative business strategy, proper financial control and best practice business management can easily be made possible by the cost effective outsourcing of this role to a business advisor/financial controller. This solution will not only help to prevent  Small and Medium Sized Businesses from failure, but also assist and enable them to grow their business profitably and sustainably.