The excitement you might have felt when you started your small business is often tempered by the reality of trying to keep your business afloat in the current market. Reality sets in even more when you look at the survival rate of businesses between 2014 and 2018.
Specifically, only 59.6% of non-employing SMEs and 69.3% of SMEs with 1 to 4 employees survive their first three years. So what’s the problem? Why are these SMEs failing and what are you doing that may make your business follow in their footsteps?
1. Not reducing your cyber risks
One of the biggest risks to any size business is ransomware and phishing. In fact, in 2018, nearly 80% of small businesses experienced some form of cyber attack. Unfortunately, most small businesses are unprepared for cyber attacks or data breaches. There are many ways to protect your business from cyber attacks, but one of the most important strategies is to take out Cyber Insurance to reduce your risks.
2. Not diversifying your client base
If one of your clients is responsible for more than 50% of your income, then you need to diversify your client base. Whilst you are trying to keep your own business afloat, if this customer goes out of business, you will likely follow suit very quickly, unless you can replace their income. It’s always a good idea to have a large number of clients, so that if one drops away, it doesn’t heavily impact your revenue.
3. Not managing your taxes
The smaller your business, the less likely you are to employ accountants, bookkeepers and tax specialists. This can be a big mistake, because any breaches of the tax laws can bring the full might of the ATO down on your shoulders. At the very least, you need a tax specialist who can ensure that your business is up to date with its business tax. However, unless you can keep track of all invoices, payments, expenses and employee wages, etc., you will need a payroll officer, bookkeeper and accountant as well.
4. Not addressing legal issues
Some of the issues that can cause SMEs to run afoul of the legal system include not ensuring the IP of their business name, trademark or logo. Not obtaining the appropriate licences and not complying with the Privacy Act are other potential problems. There are also issues with company ownership structures, commercial leases, employee pay, professional liability, and the list goes on. Protecting your company from legal risks allows you to focus on growing and expanding your business, so it should always be an essential pillar of your business plan. SME Business Insurance or just Liability Insurance can reduce some of these risks, but taking on board appropriate legal advice will also reduce many others.
5. Not anticipating natural disasters
The bushfires, followed by severe flooding has left many SMEs financially devastated and unable to trade. Unfortunately, your financial obligations don’t end just because your revenue has temporarily ceased. Whilst there are defences you can put in place to reduce the outcome of natural disasters, Business interruption Insurance can keep your business ticking over until you can begin trading again.
For help deciding which type of insurance can help to lower your business risks, talk to an insurance Advisernet Adviser today.
General Advice Warning
The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement before making any decision to purchase this financial product.