Why SME Businesses Fail

Did you know that Small to Medium sized Enterprises [SME Businesses] employ 63% of all workers in Australia? This makes them Australia’s largest employer. Representing over 96% of all business and contributing 33% of the GDP, SME’s play an integral role in the Australian economy. This positive role is however tempered by the sobering fact that the mortality rate amongst SME’s is undeniably high. The number of SME’s facing survival challenges each year is on the increase, the most significant causes appear to be due to an inability to manage costs or anticipate rising costs according to a survey which questioned more than a 1000 Australian SME’s.

The survey undertaken by accounting software firm CCH and global information service group Wolters Kluwer further revealed that the most common challenges for SME’s are inexperienced management, access to capital, the inability to manage costing and a poor business model.

Respondents of the survey attributed failure to the following:-

  • An inability to manage costs (61%)
  • Inexperienced management (50%)
  • Poor/ or no Business Plan (50%)
  • Insufficient capital (49%)
  • Poor or insufficient marketing (37%)
  • Insufficient time managing the books (31%)

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Interestingly, respondents were able to pick multiple reasons for failure and only 26 percent identified failure to seek professional advice as a key reason for failure while 70 percent trusted their “gut instinct” over any professional advice.

Greg Jewell, Principal of Jewell Moore Chartered Accountants commented that the rejection of sound financial advice coupled with business advisory services was a decision that put most SME’s at risk for failure. He added that the passion of this market sector to achieve success by doing what they know best is often undermined by the lack of time, attention and skill required to work the numbers resulting in hard work at the front end of business followed by poor profitability and disappointing results.

Russell Evan, Chief Executive of Wolters Kluwer Asia-Pacific echoed these sentiments in an interview with SmartCompany when he stated that “SME’s are incredibly busy until the day they go broke, but accountants say that because they have seen this before they can provide advice not just about revenue drivers but profit drivers”.

It is a well-known fact that the first few years of any new business are considered to be the “make or break” period. With that in mind most SME’s should be reaching out to their accountants and trusted advisors for more than just compliance and tax requirements. Many of the smaller SME’s are afraid of the cost of advice whilst the larger SME’s appreciate the cost of failure and are therefore quicker to engage the services of a professional to advise and mentor them through the establishment of their business to achieve sustainable growth.

There are no recipes for guaranteed success. Starting and running a business is never easy and the goal posts change all the time with new rulings and legislation. Business owners owe it to themselves, the future of their business and family to take on an advisor to help them manage the process of building a successful business, to build confidence in understanding the numbers that drive a successful business and to have the backup of a professional who will advise on the pitfalls and opportunities that they may fail to perceive. An unbiased ear to listen to their dreams and fears and someone that will understand their business intimately.

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