It has been reported that small and medium enterprises are among the top drivers of Australia’s economy, contributing around 57 percent of the country’s GDP and employing roughly 7 million people. However, these impressive numbers only speak of the SMEs that are lucky enough to survive past the first few years operation.
According to a report by Australian Securities and Investments Commission (ASIC), more than half of small and medium-sized businesses become insolvent within the first three years of operation. This is an alarmingly high statistic and it’s something that has caused many aspiring entrepreneurs to think twice about starting their own small company.
So why is this? What causes so many SMEs to fail?
Three Key Failures of SMEs
Through years of working with different companies from various industries, we have been able to pinpoint the biggest problems that cause SMEs to fail. Here top three:
1. Inefficient record-keeping
New business owners are often overwhelmed by the myriad of invoices, forms, and other paperwork that they need to keep track of. As a result, they tend to put off organising and updating these records. This all-too common issue prevents the business owner from fully understanding how their company is performing financially and keep them from making good decisions.
2. Not using the right accounting software
Another key failure is not investing in the right accounting software. This is often caused by the misconception that since SMEs don’t have too many accounts to keep track of, they would not have any problems with a manual accounting system. While some business owners can certainly stay on top of their accounts manually, others need more help. After all, there are so many things that a business owner needs to oversee on a daily basis.
Without an updated accounting software, it would be quite easy for you to lose track of invoices, bills, payment deadlines, and other such crucial details. This can be detrimental to the financial health of your business.
3. Failure to collect debts
Efficient debt collection is necessary for a business to survive and grow. This is even more so in the case of SMEs, where the available cash is often in short supply. Unfortunately, many small business owners often fail to keep track of how much money are owed to them and are unable or hesitant to chase after clients who don’t pay.
How You Can Avoid These Pitfalls
Fortunately, there are many simple steps you can take to avoid these mistakes and safeguard your company’s financial interests. Below are some that you can implement right away.
• Invest in updated accounting software
Remember that up-to-date accounting systems offer important information that you need to make smart financial decisions for your business. For this, you will need to find right accounting software for your business. Xero, Freshbooks, and QuickBooks are only a few of the options you can choose from.
• Look out for insolvency indicators
Always keep an eye out for any signs that indicate your business might not be doing so well financially. Perhaps you are unable to pay your own bills on time or you have too many unpaid invoices. Insolvency indicators allow you to better understand your business and determine right away if there is a need to reduce your spending.
• Establish clear cash flow management procedures
Create clear and specific processes for managing your cash flow. This should include everything from record-keeping to following up on unpaid invoices. Also, set a contingency plan for slow sales months. This way, you can maximise your cash reserves and ensure that your business will thrive no matter the situation.
• Don’t hesitate to call in the experts
Don’t take chances when it comes to debt collection. If you think this is a task that you will not be able to focus on, call in debt recovery specialists right away!
A professional debt collection agency like Slater Byrne Recoveries will not only take care of all your debt recovery needs, but they can also assist with debt financing, risk assessment, and more!
Call us today at 1300 794 290 to learn more about our services. You can also send us a message at [email protected].
Liam White joined the Slater Byrne Recoveries team in early 2013. He has worked across the credit & dispute resolution industry for a number of years. He is currently working in a Marketing/Head of Sales capacity at Slater Byrne Recoveries.