The 2016 guide to small-business success

April 11th, 2016

We're a good three months into 2016, and by now, you probably have a good idea of how the next few quarters might pan out. If anything defines 2016 it is likely to be risk and opportunity.

In the modern business world - where competition is higher than ever and consumer confidence is steadily growing after the GFC - both of these things exist. There are common risks that can send a small business into dangerous territory as well as a chance to push your company onto the next level.

Whether you see more risks or opportunities comes down to planning. Small businesses have their own characteristics, challenges and chances, so they need to look at things from an angle that benefits them.

With this in mind, here is our guide to small-business success for the rest of the year.

1) Plan ahead

It's believed that best-selling novelist Stephen King didn't know how any of his tales would end when he started them. While that could be a fine thing for a writer, it's not a sentiment that translates well into the small-business environment.

Over the past few years, the second quarter has seen by far the fewest business closures than any other.

Planning ahead could be as simple as looking at your chances of success or failure in the coming quarters. According to Dun and Bradstreet, more businesses fail in the latter two quarters of the year than in the first half.

Over the past few years, the second quarter has seen by far the fewest business closures than any other three-month period. Only around 9,000 businesses were involuntarily de-registered during this time last year, compared to 13,615 in Q3.

Even by understanding your riskiest months, you can strengthen your company financially to weather the storm. There are plenty of business funding options out there, so get to know them now so you can plan ahead for your financial future.

Business success, small business, funding, finance, debtor finance, invoice factoring, trade finance, cash flow
Look for opportunities and plan ahead to maximise success.

2) Look for a competitive advantage

It's not all bad news and business failures. While Q3 last year saw a two-year spike in the number of companies closing their doors for the last time, a remarkable 60,000+ started trading.

With statistics like that, it's not surprising competition is so high. The aim for small businesses, then, is to get their voices heard, rather than have them drowned out by the noise of the rest. In a bid to do that, Forrester predicts that social media marketing in Australia will reach $502 million once this year is over - some rise on 2015's spend of $322 million.

Whatever you spend on trying to stand out, it's likely to be a figure that's going up - and so are your competitors' marketing budgets. So, while looking for a competitive advantage - whether it's marketing, product development or pricing strategy - have a secure and sustainable means to fund it.

3) Have a financial plan B

This brings us on to our next point. Investors come and go, revenue from customers rises and falls, and grants aren't always renewed. Your means of funding will likely fluctuate throughout the year, so have a solid plan B to prevent yourself from falling into trouble and to maximise success.

It's a popular way of finding funding, with $17.4 billion in debtor finance turnover lodged in Q4 2015.

Debtor finance is something we feel very passionate about, because we've seen how many Australian businesses it helps.

If your money is tied up in unpaid invoices, you can easily be left without the funding to make a quick strategic decision. If you can get these invoices paid off by a debtor finance provider, you will have an immediate cash injection, without having to take out a loan.

It's a popular way of finding funding, with $17.4 billion in debtor finance turnover lodged in Q4 2015, according to the Debtor and Invoice Finance Association.

It's a low-risk way of creating an emergency fund. However, it's also more than that. Invoice finance is not just for struggling companies, but is often used for those who want to grow. Accelerating the resolution of your invoices does not involve taking on debt, but removing it from your ledger. It also means a small-business owner does not have to put his or her personal assets up as collateral.

Business success, small business, funding, finance, debtor finance, invoice factoring, trade finance, cash flow
Focus on cash flow to get a competitive business advantage.

4) Maintain a healthy cash flow

For the past two years, "inadequate cash flow or high cash use" have been the most common reasons why businesses fail, according to the Australian Securities and Investment Commission. These two problems have always ranked highly, though cash flow has become a real game changer.

It's not just a symptom of poor companies, but de rigueur in highly successful ones, too. The problem is it's easier to say you will maintain good cash flow than it is putting that into practice.

That's why cashflow finance exists; to give businesses a financial injection when pipelines have temporarily dried up. The chances are, your competitors don't have great cash flow, so focusing on this now could help you succeed, both on your own books and in the wider marketplace.

Many small-business owners can find themselves overtrading.

5) Grow with caution

When a business grows, it's a good sign of success. However, when a business expands too quickly, it can lose financial control over the business. It's the equivalent of falling at the final hurdle when you're ahead of the race, or a healthy fish outgrowing its pond.

Ultimately, achieving sales is great, but it's not the end of the show, and many small-business owners can find themselves overtrading.

Imagine if you emptied your inventory in a week off the back of a great marketing campaign. You could easily find that your ledger is now stuffed with debtors, though the money they owe you is not yet in there.

Without that capital, how can you reinvest in more stock? The main options are: take out a loan and lose money in lender's interest; wait until your money comes in and lose the momentum of your campaign; or use trade finance and pay a small amount to immediately accelerate your accounts receivable.

Business success, small business, funding, finance, debtor finance, invoice factoring, trade finance, cash flow
Be cautious of quick growth for the good of your business ledger.

6) Get all the help you can

It's a cliche that small businesses are the backbone of the Australian economy, and it's also a disservice. Our two-million-strong collection of smaller companies are the backbone, the ribs, the legs, the pelvis and every other skeletal analogy.

This year's federal budget might also help small businesses.

That's why there is some substantial help out there to get businesses on the smaller side off the ground. It is still possible, for instance, for small companies (those whose annual turnover is less than $2 million) to receive immediate tax depreciation on their equipment spend thanks to the 2015 federal budget.

Any newly purchased item up to a price of $20,000 is eligible for immediate depreciation, and practically all equipment purchases, except in-house-developed software and hydroponic systems, are qualified until June 2017.

This year's federal budget might also help small businesses. While nothing official has been released at the time of writing, Treasurer Scott Morrison has all but ruled out a GST increase. Meanwhile, discussions on whether company tax rates will fall from 28.5 per cent have been fuelled by Mr Morrison's recent address to the National Press Club.

The treasurer said the government are looking at what countries like New Zealand and others are doing as a base for its own decisions. Our trans-Tasman neighbours currently have a company tax rate of 28 per cent.

Small-business owners should also use expert assistance when they can. The team at Earlypay is more than happy to help you find a finance method that suits you. However, knowledge is power. If you'd like to do your research first, we've created a quick white paper on what debtor finance is as well as a guide on choosing the right finance provider.

For anything else, feel free to give our team a call on 1300 760 205. Here's to a successful year for your small business!

If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].