The results of a major research study into small/medium
enterprises were recently released which provide an interesting insight as to
the reasons for and impact of business failures.
The study was conducted among 1018 business owners or
business decision makers of organisations of 200 employees or less.
The study also was conducted among 212 accountants or
principals of accounting firms servicing small and medium enterprises.
The study was commissioned for CCH Australia and the results
released in April 2013.
A number of questions were raised with both the SME
enterprises as well as accountants to that business sector. Let's have a look at some of the results:
Reasons Why
Businesses Fail
The 3 major reasons, according to SME owners and managers, were
as follows:
1.
Failure to manage costs/anticipate rising costs
2.
Inexperienced management
3.
Poorly designed business model
On the other hand, accountants listed the major reasons as:
1.
Poorly designed business model (eg no business
plan)
2.
Inexperienced management
3.
Insufficient capital
There is a remarkable similarity between the two groups - I
would suggest that although SME owners and managers have ranked failure to
manage costs as the major reason, this really is a symptom of a non existent or
deficient business plan and
inexperienced management. The main take home here is that you can be good at
the things your business does however your chances of failure are great if you
have poor management skills to go with it. This is the message of that book
which is compulsory reading for all business owners, the E Myth, by Michael
Gerber - read it if you haven't as yet!
Another interesting observation from the study was that 66%
of SMEs believe that businesses often fail for reasons out of the owners
control. I see this as a major issue for business owners - most financial
problems are caused by poor management decisions or internal factors rather
than external factors - and that is a fact!
The Cost of Business
Failure
SMEs ranked the financial cost to the owner as being the
biggest cost, closely followed by the financial cost to staff, including losses
of wages, entitlements and superannuation.
Further, the emotional cost to the owners and family and
financial cost to creditors and suppliers were also indicated as major costs.
It is quite common to see relationship breakdowns which have
been caused by financial challenges experienced in the family business
When Are Businesses
Most at Risk
SMEs indicated that they believed that a business was most
at risk between the first and second
year after commencement. Accountants, on the other hand, believe that period of
greatest risk is in the first six to 12 months.
On a case by case basis, the quality of management and
business model pursued by a business will determine the most likely timing of
any adverse risks a business may face. In most cases, it will be deficiencies
in these two areas that have been the reasons a business has been started with
insufficient financial resources, resulting in a substantial increase in risk
of failure.
Is Business Failure a
Necessary Stepping Stone to Success?
66% of SMEs believe that business failure can be an
important stepping stone to future business success. I would agree to this
providing the owner/manager has learnt valuable lessons from the failure.
Who Do SMEs Trust as
Professional Advisers?
Reassuringly, 82% of SMEs agreed that their accountant is
their trusted adviser, not only for financial accounts but also for advice on
continued success and growth of their business.
On the other hand, 70% of SMEs trust their own instincts
over the advice of their accountant or other professional. In a way, this is
not surprising due to the entrepreneurial nature of SMEs.
What Does This Mean?
Your accountant needs to be your "Trusted
Adviser". He or she needs to be more than your once a year tax preparer. If you are not working with your accountant to make your business better and enhance your success or wealth, you may need to ask some serious questions of your relationship. Of course, a pro active accountant will already be asking you important questions, including, but not limited to:
- What are your goals?
- What are your strategies for achieving these goals?
- How is your progress?
- Are your assets protected?
And working with you to develop strategies to ensure success in your life is achieved!
Is this what you are getting with your accountant now?
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