Client Journey —What they don’t teach you in big business
What is the world of small business like?
The Australian economy is dominated by small businesses, rather than large enterprises: On the latest statistics, a whopping 97 percent of Australian enterprises are small businesses (defined as those with 20 or fewer employees). Small business is the lifeblood of the economy and small business owners are probably the hardest working Australians. But they are also economically vulnerable: There is only a small margin for error for directors, and the consequences of failure can be huge. Despite this, small businesses do not always get the same press and attention that their larger brethren do.
Here we take a look at the optimal journey for small businesses: How can small businesses in Australia best navigate some common difficulties and go on to thrive?
What are the key pain points for Australian small business owners?
- Unlike big business CEOs, there is no golden parachute for failure – the business owner can literally lose their house if their business fails
- Business and personal lives are intertwined. The pressure points for small businesses are closely linked to the health and well-being of the business director(s). For example, an over-stretched director often neglects cash management and record-keeping. They can then become burnt out, and the consequences of poor cash management compounds as they try to ignore the issue and struggle on. There is no easy delegation (or fat bank accounts) to outsource the tricky stuff (unlike in big business)
- Being good at one thing isn’t enough. It is essential to be a generalist in small business because of the large number of demands. It’s not the same in big business — CEOs of large corporates can have real-time cash flow reports created by financial controllers regularly provided to them.
How can small business owners best be supported through these pressures?
In order to manage these inevitable difficulties in small business, it is essential to:
- Have the right processes in place. This means delegating what you can, automating accounting and cash management, and using project management software to keep track of ongoing workflows
- Honestly assess the economic viability of business. For example, any business still renting out DVDs isn’t long for this world. On the other hand, there is always time to pivot — like when Netflix shut down its original business service, sending out DVDs by post. For more information on economic viability/distress check out our in-depth guide ‘If Economic Distress, Liquidate. If Financial Distress, Save through Restructure’
- Understanding the financial position of the business. And where that position is not looking good, putting in place a good strategy to try and improve it.
Who can best support small businesses through their difficulties?
Every small business owner will have certain guidelines or ‘rules of thumb’ in place about their own performance. As soon as the business starts straying outside these guidelines, it is worth seeking independent advice. Matters should not be left to get out of hand to potentially end in insolvency. Some of the outside advice you might consider includes:
- Business Coaching — preferably paid, other small business owners who have been through similar struggles are often in a good position to help
- Specialist small business specialist advisors — Sewell & Kettle works in restructuring space for financially distressed companies, including emergency accounting and viability review. It can be particularly important to seek out advisors who are both responsive to current difficulties, and strategic about moving the business forward.
At the same time, be aware of the risk of choosing the wrong kind of advice. For example:
- Obtain accounting support that is more than historical financial information only – basic financial statements are not enough. It is important for specialists to have a deep dive into the business’s debt structures, and cash management practices to see if there are deeper problems that need to be addressed
- Don’t rely on people for advice who are trying to sell you a product. Unscrupulous advisors can push desperate business owners in the wrong direction, such as expensive finance facilities.
The small business journey
Having worked with many small and medium-sized businesses over the years, we have found the following journey is ideal for businesses seeking long-term success:
- Put the right business plan, processes and business support in place early on. If business owners are purely reactive to problems that come up, they may be unknowingly moving towards insolvency, and an eventual restructuring
- Value yourself and the services you provide. Clients and customers can tell when business owners lack confidence in their own products and services. If you want others to rely on your goods and services it is crucial to believe in yourself.
- Develop rules of thumb for your business so that you know you are heading in the right direction. For example, you might have a rule of thumb that there will never be more than one late invoice payment per quarter. If you find yourself exceeding that rule, the you may need to look more deeply into your business to see what is causing any issues.Other rules of thumb include minimum price mark-ups, measures of staff productivity and lifestyle requirements.