Small businesses account for the vast majority (97 per cent) of all businesses in Australia. Unfortunately, these businesses face significant and ongoing challenges that constantly threaten their viability. According to the Australian Bureau of Statistics, more than 60 per cent of small businesses close within the first three years.
Recessions, economic downturns, internal conflict and industry shakeouts all contribute to this alarming figure. But a report by The Australian Securities and Investment Commission (ASIC) found that the leading reason (44 per cent) was poor strategic management.
Below we offer some tips to help your small business plan for survival, regardless of the economic environment or the unique challenges it faces.
Have a Plan
Business owners should always have a stringent plan, outlining everything from objectives and financing to sales and marketing. The ASIC report found that 40 per cent of small businesses that failed had inadequate cash flow or high cash use. Running out of money is certainly one of the biggest and most obvious reasons a business could go under.
By having a strategic plan in place, you can gain a detailed understanding of your business’s financial position. That way, you can identify the need to change your behaviour and take action before it is too late.
Cut Costs with Precision
When businesses are in financial trouble, a sweeping cost-reduction policy is a common approach. But for small businesses, cost cutting needs to be done with precision. Too little and your cash flow problems will persist. Too much and your business may not recover.
Strive to keep production/back-end budgets as low as possible and keep prices competitive. Never undermine the quality of your products or services. One approach is to outsource certain administrative functions of your business.
Examples could include payroll operations or IT infrastructure management, both of which involve significant ongoing costs to maintain in-house.
Differentiation and Customisation
During difficult periods where businesses or whole industries are struggling to make sales, reinventing the way you offer your products or services can draw more customers. This could include working with customers to identify and produce tailored solutions for them.
Customising your products or services to fit the ever-changing needs of customers can provide the necessary boost to reignite your business or help it survive during difficult times.
Use Low-Budget Marketing
Marketing tends to be one of the first functions of a business to get cut during difficult times. But with less marketing, the number of incoming prospects is reduced resulting in another, potentially greater, threat to your business’s financial position.
Businesses should never reduce their marketing activities during these times. Instead, replace them with low-budget marketing strategies like social media, online marketing and networking.
Focus on the Fundamentals
Surviving difficult times may mean revisiting the fundamental principles of running a business. Make sure you’re doing regular financial checks, getting advice when you need to, providing proper training, managing your relationships well, and documenting everything.
Keeping your business in good shape is particularly important if your long-term goal is to sell the business for a profit.
Selling Your Business?
If you’re thinking about selling your business, talk to Australia’s leading business brokers at LJ Hooker Business Broking. We have more than 16,000 buyers on our bespoke database and we are experts at managing business sales and acquisitions.
We can offer advice on how to prepare your business for sale, providing high-quality support throughout the process. Call 02 9552 1111 or contact us online to find out more.