Many small businesses have spent the best part of 2020 scrambling to stay afloat and, sadly, some have sunk from the pressure.
Equally worrying are the small businesses that have navigated COVID-19’s choppy waters only to be swept under as the nation’s economy bounces back.
For smooth sailing in 2021 and beyond, it’s vital small-business owners learn to identify the risks of insolvency, act quickly and innovate strategically.
Cashflow issues are the most obvious signs a small business is on the path to insolvency and may include:
Cashflow issues signal a small business is not selling enough and has not built enough profit into its margins.
Small businesses that cut margins and discount but try to trade in the same manner despite the changed conditions are more likely to enter an insolvency spiral than businesses that look for new opportunities, test new markets and create new efficiencies.
As JobKeeper payments wind back, business insolvency and personal bankruptcy is predicted to increase among operators that are overly reliant on the scheme.
Small businesses should use government initiatives such as JobKeeper and the instant asset write-off scheme to retain their core competencies – including staff – and experiment and innovate rather than simply wait out a crisis.
While government incentives may drive turnover, operators must invest it wisely.
Many small businesses are investing in mining their data to better understand customers and respond to their needs.
Others are harnessing augmented reality technologies to value-add to the customer experience, engage new markets and incentivise staff.
In times of recession, small business should double its innovative capacity.
However, it is important not to cast the net too broadly, focusing instead on two to three opportunities that add value to customers’ lives.
Lean experimentation is the key to rolling out innovation without collapsing.
Small businesses should experiment continuously, test frequently, avoid overinvesting and walk away before digging themselves too deep.
Even small bets can return big dividends which is why it pays to fail often, fail fast but fail cheap.
Instead of setting a goal then plotting a way to reach that goal, small businesses should start by examining who they are, what they know, who they know and what they own.
These findings should then be used to develop innovative and achievable goals.
Small businesses should seek legal advice at the first sign of insolvency rather than try to trade their way out of trouble. The path to recovery and prosperity can be found by:
Dr Sarel Gronum, Lecturer in Innovation, University of Queensland Business School and Associate Professor David Morrison, University of Queensland School of Law