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Why Businesses Fail: and You Won’t

The demise of several high-profile Retail brands to go insolvent in Australia in the last 12 months is significant – and if it has taught us anything – you can’t stand still

The most common reasons business fail:

  • Inadequate cash flow or high cash use
  • Poor strategic management
  • Poor financial control, including lack of records
  • Poor economic condition
  • Trading losses
  • Under capitalisation; essentially insufficient access to funds.

The above factors, in some form or another, would have contributed to these “big” brands losing their way in a saturated marketplace.

The warning signs are often early. What starts as the business lacking in cash flow, leads to inability to access sufficient funds, which leads to poor decision making and so on and so on. Like the mouse on a wheel, the faster the wheel spins, the faster the losses accumulate.

In most cases there are some common areas where a qualified advisor could have helped. Such as:

  • business coaching
  • strategic business planning
  • cash flow management, costing and profit forecasting
  • debt management.

Many of these businesses could have avoided insolvency if they had sought out the right help early enough. It’s often too late once cash flow has dried up. 

People tend to forget that running a business is a skill in itself. For example, most tradesman don’t fail at business because they have poor craftmanship, but rather they don’t have the capacity (time or desire) in improving their business acumen.

Breaking it down even more, most businesses fail due to:

  1. Lack of business skill
  2. Environmental reasons

But then again, even environmental can be navigated – as we have seen in Retail – the shifting landscape and consumer demands has changed the way people shop. This, however, is not an insurmountable challenge for Retailers to overcome, it just requires a change in strategy and approach. The inability to overcome the change in consumer demands, is really just a subset of lack of business acumen.

“A ship doesn’t sink because of the water around it, but because of the water that gets in”

 


 

TOP 10 Retail Failures in 2018:

LAURA ASHLEY: entered into administration in December 2018, the second time in two years. Laura Ashley had operated in Australia for 35 years, and had 45 stores nationwide.

DIANA FERRARI: the 37 year old company entered Administration in January. All that remains is a handful of outlet stores with consolidation of its product lines now only being available online, or via distributors.

MOUNTAIN DESIGNS: one in three stores closed in 2018. While the company technically did not enter Administration, its significant downsize is symptomatic of internal losses.

GAP: exited the Australian market in early February – this came off the back of a failed joint venture with OrotonGorup which had its own financial troubles

AVON: perhaps one of the most synonymous brands to exit Australia in the last 12 months. Started in the US in 1886 and is one of the world’s oldest beauty brands.

ESPRIT: Closed 67 stores in Australia and NZ due to significant drop in profits. It had been operating in Australia since 1981.

DOUGHNUT TIME: was placed into liquidation early in year closing all its stores. The brand has since been re-launched in South East Queensland with a new owner.

TOYS R US: closed all its stores in August after entering voluntary administration.

ROGER DAVID: the 76 year old company closed all stores in December after being placed in VA in October.

MAX BRENNER: consolidated down to less than half of its stores after Administrators were appointed in October.

 

So What’s Next:

Taking action early is key in ensuring all potential setbacks are accounted for before they occur.  Get in touch with us today for complimentary 15 minute discovery session about your business planning.

 

SIMMONS LIVINGSTONE & ASSOCIATES GENERAL ADVICE WARNING This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Simmons Livingstone & Associates and Infocus Securities Australia Pty Ltd strongly suggest that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances.

SLG Financial Services Pty Ltd ABN 63 734 659 141 Ltd atf for the SLG Financial Services Unit Trust t/a Simmons Livingstone & Associates is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523.