Why most small businesses fail within the first three years

More than 60 per cent of small businesses in Australia close within their first three years. This is hardly a surprise. There are countless challenges which threaten to sink you everyday.

I look back on the first three years of my SME marketing business, Green Door Co, and can now clearly see where it could have so easily all unravelled. So, how did we survive? Honestly, a little bit of luck combined with plenty of learning and tinkering along the way.

Here are some of the common challenges which threaten small businesses and how you can overcome them.

Cashflow issues

Even the most profitable businesses can be undone by cashflow. If you don’t have enough money to pay your staff, suppliers or buy product, it can grind everything to a halt.

I was extremely underprepared once cashflow became a problem in my business. Once I had hired a team and rented an office, my overheads increased significantly. I naively assumed that since I was bringing in enough revenue overall that we were covered. Of course that wasn’t the case. I eventually became unstuck due to a combination of clients not paying their invoices on time, tax and other costs, and was forced to dip into my own funds.

I quickly realised that this was unsustainable. Now I track and forecast my cashflow religiously. This ensures I know when I have cash free for purchases, meaning I don’t overspend each month, and allows me to create efficiencies or cut costs when needed.

Growing too quickly

Once your revenue starts to rise and you’ve got many more customers or clients coming through the door, growing the business becomes an exciting prospect. This is where many small businesses run into trouble. Unless this growth is managed sustainably it can send you out of business.

A couple years into my business, things were going well. We had nearly doubled revenue and recently taken on a one year office lease. I decided to hire two new senior people to help us hit our growth goals. Then we lost our biggest client, only a couple months out from the end of the year. Suddenly our revenue had taken a big hit and our overheads were bigger than they’d ever been, at a time of year which is the quietest for generating new business.

What I learned is that you need to stretch for as long as possible before investing in new staff or other items. It may mean working ridiculous hours for a little while. But in the long run it will mean your business will continue to thrive.

Lack of knowledge

When I started my business, I was completely inexperienced. I had never run a business nor knew anyone who had. I didn’t have a business partner. I wasn’t a part of any start-up groups or an accelerator. I didn’t have a business coach or a mentor.

Over time, I realised that things would be much easier if I built up my knowledge as well as drew on the knowledge of those with more experience. I now work with business coaches, attend business and networking groups, regularly listen to business podcasts and make an effort to spend time with other business owners. Even the smallest tidbits you pick up can lead to a light bulb moment when making that next business decision.

Heather Marano, Director, Green Door Co

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