The other day I was asked why some small businesses fail and others succeed and it got me thinking about the defining characteristics of Australian small businesses.
In my role as accountant, CFO and business advisor, I come across many small businesses and I’m continually inspired. Overall, small businesses are innovative, creative and dynamic and they are a major driving force behind our economy (representing a quarter of our GDP).
But despite all the good things about small businesses, there’s one main area that is letting them down – financial management. I come across many small businesses that are missing a huge opportunity.
Financial management is the nuts and bolts of a business and even though it’s essential, it can also be complex, especially for a small business owner that doesn’t necessarily have access to the right information and it can be time consuming, something that small business owners don’t have a lot of.
So what happens? The financial management aspects of your business, like keeping accurate and up-to-date figures, are given less priority and attention than other areas of the business.
I truly believe paying more attention to the financial management of a business is the single biggest opportunity for business owners to build their business and create success.
Getting the financial management of your business right will allow you to understand the ‘ins’ and ‘outs’ of your business’ finances, know what areas of the business are performing and which ones are underperforming and will help you make better decisions for your business.
You’ll have more control over your financial position, you’ll be able to see where you can make the business more efficient by cutting unnecessary costs and you’ll know if you have excess cash available to re-invest in your business to help it operate more effectively and successfully.
So my answer to the question as to why some small businesses fail and others succeed: when you look at the majority of failed businesses, the autopsy usually reveals at the root of most problems is financial mismanagement.
My tip - if you want your business to have a better chance at success make sure you invest in:
- Having the right disciplines in place to manage your finance function so that you receive accurate and updated figures
- Having a clear understanding of your monthly results by being able to review a balance sheet and profit & loss statement that are accurate
- Having cash flow management in place to ensure you can meet pressing financial obligations
- Creating time to budget and strategise to create opportunities for future success.