It's the fear of every small business owner – seeing their carefully fostered company going under. With the overall failure rate of Australian businesses currently sitting at 0.55 per cent, according to Illion's September 2018 Quarter report, this fear is unsurprising.
However, as a business owner, understanding how other companies have failed can provide you with a road map of pitfalls to avoid. Here are some common reasons to be aware of.
Not doing market research
Loving your product or business idea is important when you look to set up a company. However, passion alone isn't enough for success.
Market research is essential for a small business' survival. It's important that you know as much as you can about the arena you're in, so that you're aware of what you're up against, and what opportunities are present. Here are two areas you definitely need to examine:
- Customer base: Do you know what your consumers are looking for, and are you providing it? Is there enough of a base to sustain your business? You may have an amazing product or service, but unless there is demand for it, your company is unlikely to succeed.
- Competitors: Knowing if you have any competition in your industry and location is important. A great way to do this and learn from them is by using benchmarking for your small business. The insights you gain into how your competitors operate may help you improve your business model and avoid failure.
Not having a business plan
Have you ever tried baking a cake without a recipe, or without knowing what type you're hoping to make? To create a successful small business, you need focus and strategy. If you have neither, you're stumbling along blind, playing with ingredients and hoping for a good outcome.
A business plan helps you solidify what you're hoping to achieve, and the steps you need to get there. It outlines your aims and what drives your business forward. While your company's needs may change over time, having a clear focus will give you direction to your actions.
Your business plan should also outline exactly what you need to do to achieve your aims. What marketing strategies will work for your organisation? How will you ensure you're prepared for growth? Create detailed and achievable steps for your business moving forward.
Not knowing your numbers
In January 2019, only 50.12 per cent of Australian small businesses had a positive cash flow.
In January 2019, only 50.12 per cent of Australian small businesses had a positive cash flow, according to Xero's small business insights. Any organisation needs access to funds in order to operate, and not having available capital is a large reason many small businesses don't survive.
You need to know your numbers. By understanding what is happening with your finances you can pinpoint issues and make essential changes to improve how your business is running. If numbers make you wince, the right accounting firm can add value to your company while making sense of topics for you that you'd rather avoid.
Not investing in the right advice
Going it alone may sound like a great idea, but in reality the disadvantages are numerous. No person is an expert in every arena, and running a business requires a massive range of skills and knowledge. Not only do you face burnout, trying to juggle all the different tasks, but you're likely to make errors along the way that might result in your business failing. For example, if you have no marketing knowledge you might not understand how you can tap into a client base despite being aware that it's there.
You need to invest in the right advisors and services. Figure out your personal strengths and weaknesses, and bring on board people that can take over the tasks you're not equipped for. Be smart around who you choose, however. For example, when choosing an accounting firm, look beyond simple tax advice. Many also provide an extensive range of business advisory services for their clients, helping them make sense of their finances and working with them to figure out how to achieve their goals.
Not understanding your competitive advantage
Competitive advantage is what sets your business apart. It's the magic ingredient that allows it to thrive and grow, if identified and fostered correctly.
What do you offer that your competitors don't? What do your clients love about your services or products that keeps them coming back for more? Not knowing your competitive advantage creates a severe disadvantage for you. If you're a cookie-cutter business, why should consumers come to you instead of someone else that can offer the same services but improved in some way?
Take Amazon Prime for example. The reason it's such a massive and successful company is because it knew what set it apart – speed. This allowed the business to focus itself around this edge that it had over other competitors. If Amazon Prime hadn't known its competitive advantage, it's unlikely you'd know its name now.
Don't fall into the pitfalls other small businesses have before you. If you want help guiding your company through the tricky terrain that is business, reach out to the team at WMC Accounting today. We're here to help your company thrive and succeed.