#163 This Business Statistic Will Blow Your Mind... Don't Let This Be You!
Did you know that the current small business failure rate is 36% above the average?
It’s the worst it’s been in 11 years and the estimate is that ten thousand businesses will close down this financial year. As I’ve said many times, prevention is better than cure so I’m going to share the five biggest reasons behind these business closures and the steps you can take to reduce this risk.
Cashflow Management:
Cashflow is the cornerstone of any small business. We need the infrastructure in place to bring in consistent reliable cashflow, and detailed oversight on our numbers. What this looks like is solid legal documents tailored to your business. They support you in converting prospects to paying clients and in feeling confident and secure when faced with challenges. Once your foundation is set, a good accountant can help you maintain it and keep you up to date. If you aren’t connected with an accountant yet, this is your sign! Don’t wait until it’s too late!
Keeping Up with Legal Changes:
I’ve heard from many small businesses that changing laws, especially in areas like employment law, are difficult to keep up with. This is where you should look to experts like lawyers and accountants, to guide you through the complex legal landscape. Surrounding yourself with a team of advisors will give you access to the knowledge and resources you need to stay informed and compliant.
Cyber Risks:
Cybersecurity threats pose a significant and ever-increasing risk to businesses. The average cost to a small business when hit by a cyber-attack is $50,000, which is definitely enough to sink a business. How can you protect yourself from cyber threats? Get prepared, stay informed and establish cybersecurity protocols in your business. This is things like data encryption, regular system updates, and employee training programs.
Winning Work and Payment Terms:
Sales and payment terms play a vital role in business success. Ensuring your legal documents, processes, and systems align with your business operations will help you navigate payment issues and support your cash flow management.
Failing to Adapt:
If our business isn’t able to adapt to changes and trends then we can get left behind and our risk of failure increases greatly. Change shouldn’t be seen as scary though. If we stay flexible and open-minded it becomes an opportunity for growth and innovation. Just remember, to make sure you have the legal support in place to facilitate the changes you make.
The biggest message I want you to take away from this episode is not to wait until it’s too late. Get proactive and get connected with experts who can guide you. Yes, the statistics are scary but with a strong risk mitigation strategy you can set your business up for long-term sustainable success and avoid becoming a statistic.
Full Transcript:
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[00:00:00]
Tracey: Hello everyone. Welcome back to another episode of the Rise Up in Business podcast. Thank you so much for choosing to join me for another episode of the podcast. I am thrilled to share that we are now into season eight of the rise up in business podcast. It's quite the achievement. If I do say so myself, I'm so proud of the listenership that we've developed and of the traction that we've got with the podcast.
I'm hearing from more and more of you all the time that you are longtime listeners that you're taking in the content that you're now ready to up level that now's the time to reach out and just generally, even from my beautiful, beautiful current and existing clients. way that you listen and engage with the content just fills my heart with joy.
So thank you so much for choosing to be here with me for this episode. Today, I'm going to hit you with some statistics. So I talk a lot on the podcast about prevention being better than cure, about reducing your risk, what you can do to set your business up for success. I talk about all of it.
I've given you my background in dispute resolution. I've shared client stories. I've shared past client stories and examples and real life examples so that you can understand with context where I'm coming from. When I share these episodes with you. Today, let's talk statistics. This one is big. And like the title of the episode says, this statistic will blow your mind.
It certainly did for me. The number of businesses folding at the moment, so closing, going under, going into [00:02:00] administration, whatever you want to call it, is at an 11 year high, The number of businesses failing is 36 percent above the average. I get my data from different places, but these latest stats have come from Creditor Watch. For the year and 30 June. So the current financial year, we're heading up to 30 June. The estimate is that 10, 000 small businesses in Australia will fold, whether it's voluntary administration, creditor administration, other reasons why they're folding, but they will fold, close, fail, whatever you want to call it, 10, 000. And up until March, we were already at 7, 747. So what that means is according to the data, and the stats and the estimates for April, May, and June, the expectation is that 2, 253 small businesses will close in Australia.
This has blown my mind that we're at an 11 year high, We've got more information available to us than ever before, it's easier to start a business in theory than ever before because of the shift and attitude of consumers in terms of doing business online. So what on earth is going on?
And that's what I'm going to dive into now. So this statistic is huge and it's worrisome. I'm not a negative Nancy, though. So if you know me, you know, I'm the eternal optimist. I'm that really annoying person that can flip any situation and put a positive spin on it or see the silver lining or talk to you about how the universe is doing this for you, not to you.
And what's the lesson? I'm that person. Sometimes people can love it. Sometimes people can hate it. I'm that person. So I am not Negative Nancy and this podcast episode is not intended to be negative. What I'm intending to do in this episode is share with you the reality of these statistics to give you context around [00:04:00] why I always say, it's so important to set yourself up for success in business, build those solid foundations, preventions better than cure all the things that you hear me say over and over. In this episode, I want to explain to you and give you some context around why it's more important for a small business than ever to be paying attention to this. So let's dive in and I'm going to share with you the five reasons that my research has shown is leading to these statistics. And I'm just focusing on small business. So we're not talking cost of living, interest rates.
I'm not talking about that. I'm talking about specifically the factors that are going to the increased rates of small business failure based on my research. The first one is cashflow. No surprises there. I say it, everyone says it, we all know it. Cashflow is the cornerstone of any small business. We need to have infrastructure in place so that we have consistent, reliable cashflow.
We need visibility over our numbers. And yes, if you don't have a really fabulous accountant as part of your team of advisors, as someone you can bring and ask questions. If you don't have a brilliant accountant that you feel really comfortable with on your side, please let this be a little nudge that now is the time to reach out and get one.
If you want to talk to me about my experience with accountants, reach out. I'm very happy to share and very happy to make a recommendation if I think it's right. So reach out. The second is, and this was interesting, not surprising though, small businesses have reported the changes in law are becoming increasingly hard to keep up with and they've cited employment law as the main area of change that they're struggling to keep up with and on my research, statistics show that 70 percent of small businesses are not able [00:06:00] to either comprehend or keep up with the changes to employment law and there was a real emphasis here on casual employees, the changes to what's a casual employee and then contractors.
The risk around having a contractor who could be deemed to be a genuine employee and what that means and the implications. It's all too much. It's getting too hard, based on what I've been reading, and small businesses have logged this as one of the top five reasons that they're struggling to the point of failure.
I'll just keep going through these reasons. The third reason, cyber risk. Yeah, that's a big one. Not surprising there either. Did you know that the average cost to a small business of a cyber attack is 50, 000?
I don't think I need to tell anyone listening to this episode that that can be enough to sink a business right there, a 50, 000 hit, cyber risk. It's real. It's not going anywhere. We need to get across it and I'll come back to it. Number four is winning work and payment terms. Sales is always going to be a challenge for small business. It's something that's real. It doesn't mean it's hard, but it can be challenging at times. In my experience with small businesses, it tends to ebb and flow. We need solid processes in place to try to do whatever we can to get some continuity when it comes to sales, but winning work and payment terms.
And again, that loops back to point one, which is cashflow for a small business needing to be paid within a timely manner. So I'm going to come back to this in a second again, but before I do number This one did surprise me that it hit the top five, to be honest, but failing to adapt. What does that actually mean?
Well, things don't always go according to plan in business. And from what I can gauge from the research I'm doing at the moment, those small businesses that are rigid and lack the flexibility and fluidity to adapt and grow with the market are the ones that are struggling, [00:08:00] ultimately putting them in the running for failure.
So there's a real need here to identify ways to adapt and grow what the change and shift in market is, what the shift in consumer or client needs are, but incorporating that into strategy and vision for a small business to ensure survival. That was really interesting. I did not expect to see that in the top five.
So there we go. So the top five reasons, according to my research, that we're at a 36 percent high in terms of small business value rates, a cash flow, difficulty keeping up with changes to the law, cyber risks. winning work and payment terms and failing to adapt. That feels really heavy. I want to flip that now.
and say, okay, forewarned is forearmed. If we know this is the research and we know this is what the data is showing, how can we better position ourselves so that we don't become a statistic? And how can we better position ourselves to guide our business forward and set ourselves up for long term sustainable success?
Let's focus on that because this is my jam. This is where I come in, in terms of the strategy, the positivity and the preventative steps. So one of my ethos in my business, as you know, very well, if you're a long time listener is prevention is better than cure. hands down prevention is better than cure in business.
There is no substitute for preparation. You can't shortcut this stuff and we don't want cookie cutter, tick boxes, she'll be right type approaches. There is no substitute for preparation. So what does that mean, Tracy? What does that actually mean? Well, if we're going to talk about these five reasons that I've just cited off the back of those statistics, the first thing to talk about is building solid foundations.
So I talk about it a lot here on the podcast. I write about it over on the [00:10:00] resources page of the website. Your solid foundations need a strong risk mitigation strategy. And I talk about risk a lot. And what is your risk mitigation strategy? If you're listening to this and you're thinking, Oh, gosh, Tracy, I don't know.
What my risk mitigation strategy is. I'm going to encourage you to dive over to my website and check out one of our new masterclasses, which is exactly on this topic. Risk, how to reduce your risk. Go to the website. The links are in the show notes, tmsolicitor. com. au and check out the masterclasses.
They're new. They're there intentionally. I've shared these with you so that you can get the information you need right now to support your business. But risk is something I talk a lot about because it's so important. So when we're building solid foundations in our business, we need really sound risk mitigation strategy. We have to be crystal clear on what that is. And part of it is your legal documents. And they are so important because they actually lend themselves to supporting against a couple of these points that I've shared. So the first is your cashflow.
So proper tailored legal documents for your business that work. will help you grow your clients and develop reliable, consistent cash flow. There's so many reasons for that. I've talked about it so often on here, but you want to be managing your client expectations. You want to be exceeding client expectations.
You want to be making sure that your legal documents are helping you convert prospects to paying clients to dovetail into that cash flow. Absolutely. So you can share your genius with the world. You can do your thing and clients will come along and be magnetized to you so that you can help them or serve them in the way that you do and achieve that solid, reliable, consistent cashflow.
Your legal documents are fundamental. You cannot avoid that here when it comes to wanting to [00:12:00] build that cashflow. So being really clear on that is really important. And I say that because this is the number one reason. That my research has shown that businesses are at an all time high in terms of failure rates, cash flow.
I mentioned an accountant a moment ago because you need a good one to help you manage your cash flow. When we talk about number two, keeping up with changes in the law, what I say to that is, yes, it's hard. It's real. Absolutely. Surrounding yourself with the right people in business is so important. And I'm sure that's not the first time you've heard that phrase, surrounding yourself with the right people in business is important.
It actually really is. And when I talk about surrounding yourself with the right people, I'm talking about your team of advisors. So your accountant, Your lawyer, your strategist, who are your support crew, who are the ones that help you navigate change, changes internally in your business, changes to external factors like the law.
Your accountant and your lawyer really ought to be at the top of that list. Having the right people around you Means you can pick up the phone and ask the question. You can send the email. You can book in for that session and get across what changes mean for your business. So employment law was cited as the biggest area that small businesses are struggling to keep up with, but there's also changes to other areas like superannuation.
Well, that dovetails into employment law, But it's also in your payment obligations. There's changes to the privacy legislation underway and pretty soon all my clients will be hearing about that. The ones that don't have privacy policies.
There's lots and lots of changes and so if you surround yourself with the right team of advisors you can actually have real peace of mind knowing that hey, when something changes I know where to go. I know who to talk to. It doesn't need to be a big deal. It doesn't need to send me into overwhelm.
I can handle this [00:14:00] and that's really important.
cyber risks was the third issue. And to that, I would say again, prevention is better than cure. So how do you help Protect yourself from cyber risks. And again, it comes down to there's no substitute for preparation. So I'm talking awareness and action plan, preventative measures, policies.
Do you know what to do when you see that really strange email? Do you know what to do when you get that call? Things like that. Keep it simple and take it back to basics and do all of your team. know how to deal with these issues when they come up. So again, it's the preventative step and it's the, there's no substitute for preparation.
Get across it, know the risks, have a plan in place to mitigate them so that you don't end up a statistic. When we're talking about winning work and payment terms, I'm not going to spend time talking about sales. That's not my wheelhouse here. Payment terms though is, and this loops us back to pain point number one, cashflow.
And again, legal documents, processes, and systems. Do your legal documents reflect the way you do business? Are your legal documents Integrated seamlessly into your processes and systems. You're onboarding the way you issue them. The way you deliver the work. The way you monitor your workflow. The way you issue invoices.
The way you follow up your invoices. What about if someone hasn't paid? Do your legal documents give you the right to charge interest? Do your legal documents give you the right to stop providing services? Do your legals deal with scope creep so that you don't end up working for free? This all comes into payment terms, cash flow, legal documents, foundations.
There is no point. Having your legal documents in place or having your legal documents tailored for you. If you don't know how to use them, if your team don't know how to use them, or if you're not using them properly. So you can see this is starting to get circular and the same threads are starting to appear [00:16:00] of what's really fundamental and what's really important to protect your business.
Then we get the failing to adapt. So again, not my wheelhouse, not the intention of this podcast, but what I will say is when you are adapting and changing and introducing new offers or a new focus, and you're trying something new in your business, make sure you have the legal support behind you to facilitate All of that.
And if that means getting on the phone with your lawyer to say, Hey, Tracy, I'm now going to do this offering. I'm now going to pivot. I'm doing that. Oh, guess what? I'm about to launch this, whatever it might be. Make sure you've got those legal documents and that framework set up and ready to go. And again, if you surround yourself with the right people, having that done is just a phone call or an email away.
So you can see the effect here of some of the common threads that I'm talking about. You want to be able to manage all of this in your business to set you up for success, long term sustainable success, so you don't end up as one of these statistics because this is really confronting, I think is the word.
Certainly when I read it, I was gobsmacked and thought that just can't be right because that means that on average. About one in 30 businesses, one in 30 small businesses will fail. And we've still got just under 2, 500 businesses expected to fail between now and the end of the financial year. And that's a lot.
So the takeaway here, my lovely listeners is yes, the statistics are real. Yes, they're scary and potentially confronting, but it doesn't have to be your business. There are things we can do to support our businesses so that we're setting our businesses up for success, long term sustainable success. So we don't become one of these statistics.
So what I'd love for you to think about if you haven't already is. What are your [00:18:00] legal foundations in your business? Do you have them set up properly? How is your cashflow managed? Do you have a stellar accountant on your team? Do you have a great business lawyer? If you don't, now might be at the time to reach out and let's chat because you are definitely someone I'd like to help.
Are you doing enough in terms of preparation? Are you doing enough in increasing your awareness, your team's awareness around cyber issues? What about your payment terms? How's that looking? Because that dovetails back into cashflow. Those are the questions that I would love you to ask yourself as we're wrapping up this podcast episode.
This is the gold I want to share with you today, because I don't want you to become one of the statistics and one of the businesses that are expected to fail. Between now and 30 June. I mentioned the masterclasses a moment ago. If you jump over to the website, you'll see that there's three new masterclasses on my website.
They're part of the Legally Empowered Entrepreneur masterclass series that I'm so proud of. It's a heart led project for me, because what I've done with these masterclasses is I've taken the questions that clients reach out to ask me. New clients will reach out to ask me. Repeatedly. I've taken those and I've answered them and addressed them and given as much value as I possibly can in some short masterclasses.
They're available on the website and they're designed to enrich your journey and to educate and empower even more business owners. To set themselves up properly so they don't end up a statistic. So the links in the show notes, jump over and check them out. I'd love to know what you think.
That's it for me for today. Thank you for listening to this episode. The first of season eight, many more to come. I've got got so many really valuable topics in line to share with you. Throughout the next season of the podcast. And I can't wait to bring that to [00:20:00] you and to hear what you think.
So thank you for those of you who reached out to provide feedback. I'm ever so grateful. I appreciate your time. I will catch you next week.
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