Why Some Businesses Succeed When Others Don’t

There has been a lot said over the last few weeks about businesses being forced to close or being placed in administration.  Quite a number of these businesses have been around for significant periods of time.

So what has caused these closures and what can small businesses learn from them. 

If it were simply a changing environment then one would question how a company such as JB Hi-Fi can buck  the trend and increase it’s share price by around 89% over the last twelve months insight of potential damaged by Amazon opening in Australia and taking market share.

When looking at what makes a business successful the most important thing, in my view, is how good the management is in running the business.  This applies whether the business is a large one such as JB Hi-Fi or a one person micro business.

In relation to the recent spate of businesses that have been put into administration the administrators have in one or two cases talked about closing down unprofitable stores or there has been suggestion that some businesses have not moved with the times quick enough.

In both these instances this suggests to me that management may not have been on top of things to the degree they should have been.   If an administrator can come in and determine there are unprofitable stores then surely management should have been well and truly on top of this issue and already taken appropriate action to close these stores.  Likewise, slowness to move with the times does not occur overnight and may reflect on management not being alert to the changing circumstances.

In the case of the one person micro business failing to acknowledge that the business is having significant cash-flow problems is one of the greatest failing of unsuccessful businesses and is certainly an area that your accountant can help you manage.  Early warning signs are not necessarily that different for large businesses and micro businesses when you look at who the largest creditors are in a lot of these closures – the ATO and unpaid wages and superannuation.  

If the business has simply not paid theses liabilities then it is bad management because simply using someone elses money to keep afloat without advising them that this is what you are doing is certain to lead to failure.  For small to micro businesses this is a critical area knowing how to properly manage your cashflow and debt and knowing when it is the right time to seek alternative management strategies or, in the worst case scenario pull the plug and close the business before the debt gets out of control.

In relation to managing changing time this should theoretically be easier for micro businesses because of their small size.  Put simply, it is easier to implement changes into a one to five person business than a business which has a thousand staff or a hundred plus stores.  While a micro business has an advantage over larger businesses it can only take advantage of this strength if management understand the threats or challenges the market is facing.

Again, micro businesses have a significant advantage in that management, yes you the owner, can be a lot closer to your client than a large multi store business can be.  If you are closer to your clients and understand the needs and desires then you can quickly implement the necessary change compared to a large firm.  Further you can take advantage of areas where large firms cannot obtain economies of scale.   An example of this type of advantage is supplying goods that the larger stores don’t want to sell.  In this instance you do not have to worry about price or competition.

So if you are a business owner and great at what you do but not necessarily a great manager seek the help of your accountant to implement the systems and reports that you need as a manager to run your business successfully and most importantly don’t be afraid to ask for help.  See your accountant as an independent sounding board and spend the time to develop a strong trusting relationship with them.

David Balwin FCPA Registered Tax Agent
Don’t have an Accountant – call me today to help 07 32644783