Why Small Businesses Fail in Australia

Starting a small business in Australia is one of the best things you can do if you want to be self-employed and grow economically. When you become an entrepreneur, you manage your business and make your own decisions for growth.

Every year, there are thousands of startups in Australia. Unfortunately, 60% of all startups in the country are likely to stop their operations within the first three years of launching. Generally, 97% of small businesses are likely to fail in Australia because of different reasons.

As a business enthusiast, this may sound like a significant downside. In this article, we have combed the data on business failure in Australia. Keep reading to find out what you can do to ensure your business does not fail in the country.

1. Poor planning 

When you start your business without planning for growth and unforeseen, you are likely to fail within the first year of operation. Yes, we all expect our enterprises to flourish. However, most people often overlook the externalities that directly affect the business outcome.  

According to the Australian Centre for Business Growth, at least 13% of small businesses forget to factor in externalities when planning their business. This directly contributes to business failure.

External factors like climate change, politics, interest rates, and global trends affect the business in many ways, which most entrepreneurs in Australia overlook. Be ready to cope with the worst in your business when it happens.

It would be best if you always planned for the best and the worst in your business. Put some measures to counter the unforeseen if you want your business to remain stable for long.

2. Not raising enough capital 

Another reason most small businesses in Australia fail is that they don’t raise enough capital to start the business. Most small businesses rarely break even within the first three years of operations because they begin gathering customers and introducing their brands to the market.

When a company lacks enough capital to take it through the first three years of operations, it is more likely to collapses.

3. Mismanaging finances

In a report released by the Australian Centre for Business Growth, 14% of respondents cited poor financial management as another reason most small businesses are likely to fail.

Poor financial management goes down to managing profits and capital. It is much more than having the financial skills required to read balance sheets and doing strategic finance.  Startups should ensure a healthy cash flow through careful financial planning.

4. Starting a business before researching 

Researching the market is the first most essential step to starting a successful business. Most entrepreneurs ignore research when they start their business, often resulting in failures. When starting your business, it is vital to research market demand, competition, and other external factors like interest rates which are likely to affect your business.

When you plan to start a business, you should know how many other businesses exist in your target market. This way, you can understand what your business should offer to attract more customers.

Do your market study and competitor research before you can start your business. When you are already running a startup, you should keep researching better ways to improve your business and beat the stiff competition.

5. Weaker business structure 

With a weaker business structure, no small business can make it to the second year of operation. In the Australian Centre for Business Growth report, 11 respondents cite that their businesses failed because of problems with family, poor governance, and sour partnerships.

For any small business to succeed, it should have a correct and robust governance structure in place.

When operating a small business, the CEO should follow a transparent chain of command. He should also consult other professionals on proprieties, company structure, and tax requirements to ensure the business’s smooth running. The management should ensure there is a complementary operational system in the business for optimal productivity.

6. Improper sales skills 

Another reason why most small businesses in Australia fail within the first year is operations is because they lack proper sales skills. A business should market its products and services with the best digital marketing agency to increase its sales. It should also ensure it has a dedicated sales team. Sales are an integral part of the business. Without sales, any business collapses because it won’t be making profits.

When you have skilled salespersons in the business, you can increase your sales in the shortest time. Most customers are always intuitive, meaning they can sense a dishonest and incompetent salesperson. At least 14% of small businesses fail because of ignoring their customers. Therefore, any small business that looks forward to succeeding should have a competent sales team in place.

7. Starting a business for money 

Ideally, the main reason most people start small businesses is to be self-employed and make some money. Money is the core of any small business, but it should not be the enterprise’s driving force. If you have all your eyes on the money, you are not likely to grow your business. Most businesses still fail even when they are making profits.

Businesses that are focused on money do nothing to innovate and grow. They do business for the money and shut down when they notice the business is not making any profits.

When you have passion and interest in what you do, you are likely to grow your business by innovating and coming up with great ideas. Understand why you are in the business in the first place. This will help you set goals and work towards achieving them in the end.

Final Thoughts 

The reasons most Australian businesses fail span from poor planning, mismanagement of finances, weaker structures, lack of research when starting the businesses, and many other factors. Entrepreneurs must do thorough competitor and market research before starting any business in Australia.

Other external factors like politics and global trends are also worth noting when you launch your business. When you consider the factors highlighted in this article, you will likely prevent your business from failing.

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