07/09/2018
The following extract from a well researched and written article by Dominic Powell - Smart Company (https://www.smartcompany.com.au/ )on Saturday, 25 August 2018, reads:
“New data from one of Australia’s biggest insolvency firms has revealed there are nearly 10,000 small to medium businesses on the brink of collapse, and experts say business strength is unlikely to improve.
The SV Partners Commercial Risk Outlook Report for August 2018 shows there are 9,948 businesses with annual turnover of less than $50 million that are at “high risk” of insolvency in the next 12 months, with political uncertainty and a downturn in property markets pinned as the main contributing factors.
Those SMEs make up 80% of the total 12,464 businesses the insolvency firm detected as being high risk, with SV Partners managing director Terry van der Velde recommending SMEs have a “rigorous” approach to risk management to try and prevent insolvency where possible.
“SMEs often struggle more with solvency than larger businesses, as their smaller income streams, tighter margins and difficulties sourcing finance can make dealing with short-term shocks more challenging,” van de Velde said in a statement.
“That’s why small and medium-sized business owners need a rigorous approach to risk management, to ensure that their business has a plan to deal with unexpected situations.”
Having been involved with businesses for over 40 years, specialised in company turnaround for 28 years and the author of 2 business books, this excellent article highlights a real problem in the world of SME’s, not only in Australia but throughout the OECD nations.
The sad reality is a high percentage of these “insolvencies” are preventable. To help business owners and managers perform a “turnaround,” there is always a common set of issues to be addressed.
The five most common issues I have encountered over thousands of companies (Not only SME’s) are:
1. Owners and managers do not know their real costs.
2. Profit and Loss are seldom structured to “manage” the business but are rather set up for quick tax filing.
3. Owners/managers have no idea of what benchmarks constitute good business practice. Some industry group benchmarks exist but are really dangerous to model your company around, particularly if they have been based on the “average” of “X” amount of companies. The reason is that we know eighty per cent of companies underperform – why would you model your company around “underperformance”?
4. Labour efficiency is poorly understood and rarely practised – paying people the award rate is not the solution to “high labour”, nor is laying people off.
5. Owners/managers do not understand how much working capital they really need.
There are many issues that result in a successful turnaround. However, we need to first understand the extent of your problem, where the “leakages” are and what is the cost and resources necessary for a turnaround.
Many individuals and companies are offering all kinds of business Services, like business coaching etc. These services are not to be rejected. However, you need to get the numbers right before any of these other services can make a significant difference.
I have written programs that provide tools which can precisely identify specific issues within your company. Use of these programs are cost effective and include:
a) Full business Analysis – Profit & Loss and Balance Sheet
b) Labour analysis – how efficient is your labour?
c) Asset Analysis – are your assets working efficiently for you?
d) Cash analysis – Do you have sufficient working capital?
Please contact Michael for more information.
SmartCompany is Australia’s premier publication for growth businesses and entrepreneurs seeking information, advice, news and ideas to help them succeed.
