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Struggling businesses need to call for help before they drown


With the busy Christmas trading period about the start, Tania Tonkin argues that under-stress business owners need to ask for help early – in fact, owning up to your struggles could be the first step to recovery.

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Small business is the engine of our economy, yet more than 8000 enterprises across the country entered administration in 2018-19.

According to SME publication My Business, South Australia recorded around 300 personal insolvencies in the last quarter. Many of these were family-run or rural enterprises.

The knock-on effect from these and SME liquidations, many of which result in bankruptcy, is devastating – both on a personal level and ultimately for the wider community.

Yet, if we encourage owners to ask for help sooner and offer more support as well as targeted education programs, we might be able to reduce these figures.

Business can be afraid to ask for help

Accountants like myself often play an important role beyond the traditional number crunching we’re known for.

When times are hard, we can be strategists, pep talkers, confidence boosters, and occasionally the shoulder to cry on when things are not going to plan.

More times than I can remember, I’ve had new clients in my office highly stressed because they simply don’t know who to turn to for help and think they have reached the end of the road – but the key thing was that they recognised they needed assistance before the situation became irretrievable.

Whether you talk to a trusted accountant, lawyer, professional financial adviser, or even your regular GP, realising there are options can make all the difference to a business, a family, or a business owner’s mental health.

A 2018 University of Melbourne report for Beyond Blue found one-third of small business owners show very high levels of psychological distress – and that’s perhaps before they hit a real crisis point like liquidation. (Beyond Blue has also posted information for small business owners who need to manage stress.)

Kate Carnell understands the difficulties SMEs face too. She’s the Small Business and Family Enterprise Ombudsman and is driving an inquiry into the ruthless practices by banks and others that often puts small businesses into insolvency without a second chance.

In difficult times, and with creditors needing to be paid, this process can sometimes be very sudden. Most of us know it’s unlikely you can salvage an operation once it is put into controlled administration in this way.

Carnell is also concerned about the fact that smaller business owners can lack an understanding of how the insolvency process works and, importantly, what they can do to avoid it.

Small business owners are very reluctant to seek advice. No doubt her inquiry will offer some new recommendations to cover these points.

Plan now before Christmas trading

SA retailers and other businesses will be entering the busy Christmas trading period shortly. Many are nervous about facing a more subdued trading environment.

It’s certainly not an easy time to be running a business, with increased competition and ever-changing consumer spending habits.

You can understand the angst of traders in places where the extra stress of outside factors, like extensive roadworks, make business even harder.

While December can be busy, watching key business indicators carefully may help to alleviate some of the more severe outcomes that often show up post festive season.

It’s in January, with a slower trade and bills to pay, that many businesses really realise they are in trouble.

From my experience, SMEs need to get all the business paperwork and projections in order by mid to late November to provide more of a bird’s eye view of operations.

Once the Christmas rush starts, this can be missed. Real-time software that tracks cash flow, expenses (including the payroll), and forecasts performance over coming months can be a very valuable investment, as it will flag problems early.

Is leadership or lack of strategy the real problem?

It can also be useful to take time to step back and to look at the bigger picture. Although financial mismanagement is a leading cause of problems, there are actually other factors that drive the demise of a business, and one of them is not seeing the wood for the trees.

A 2018 survey by the University of South Australia found the leading cause of small business failures was failing leadership, lack of planning and poor market research.

While small businesses may not have access to the in-house support of larger business, that doesn’t mean they have to avoid getting the strategy, marketing and HR. right. In fact, this is a fundamental requirement for success.

Sometimes it’s worth considering if your current business plan is working. Bigger businesses often have annual planning workshops with external facilitators to do this – small business should think about doing the same.

If you are not covering costs, having trouble paying your bills, and continually struggling, it’s probably best to ask for assistance with restructuring now, rather than limping along on your own hoping it will get better.

South Australia is a state that needs successful small businesses. There are people here to help with managing the risks and finding solutions to revitalise a struggling operation.

But business owners must ask for help early. Don’t wait to start drowning, because resuscitation can be risky – especially if liquidation is the alternative.

Tania Tonkin is a chartered accountant and a director at SA firm dmca Advisory.

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