Is poor cash flow the reason so many Australian small businesses are failing?
Small businesses in Australia are under pressure, according to statistics released by the Australian Securities and Investments Commission (ASIC). The figures show that the percentage of small businesses failing is on the rise, with owners struggling with issues such as cash flow, strategic planning and record keeping.
Research has shown that 51% of business start ups do not survive beyond four years of operation. ASIC reveals that 81% of businesses that became insolvent in 2012/13 were small businesses employing less than 20 people. The construction sector was the worst of those affected, with 24% of the insolvencies coming from that sector.
The primary cause of failure is poor strategic management, with 42% of owners reporting this. 41% also say inadequate cash flow or high cash use is a driving factor; 32% of businesses are trading at a loss; and 33% are experiencing poor financial control, admitting that they are not keeping good records.
Previously, we have talked about the fact that Australia is in a cash flow crisis, with many accounts being settled late. Dun & Bradstreet have actually estimated that over $19 billion is locked away from businesses beyond the widely accepted 30 day payment term. The good news here is that the Australian government have been putting steps in place recently to ensure that businesses improve in this area.
The ASIC figures also show that poor record keeping is a major cause of business failure. This is why it is so important to use an accounting program to manage your records well. Small business owners often make huge mistakes trying to use complex double entry programs, so give yourself a break and pick up something simple to understand like Cashflow Manager. It can also ease the burden around tax time and get your finances into shape to help you avoid a tax audit.
Avoid becoming one of the statistics and get on top of your business finances now.