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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.

Kris has over 16 years' experience in the business advisory, accounting and taxation industry. His initial years were spent with WHK Group and PKF before founding Simmons Livingstone & Associates in 2013.

As Managing Partner, Kris has steered the firm to success, being instrumental in expansion of the firms client base and subsequent recruitment to increase the professional team size.

He brings his extensive experience within a variety of areas of business services and compliance, and has a proven track record of success with clients from a variety of sectors. Not only is Kris a an exceptionally valuable asset to the firm, his business advice is invaluable for professional service clients, from a financial perspective.

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Kris has a young family and outside of work, when he’s not spending valuable time with the family, you’ll find him on the golf course or sampling a brew with the guys.

Simon began his career at PKF and several boutique accounting firms. He has established his reputation for excellent accounting consultancy, which has spanned over 13 years.

Simon is a passionate business advisor, specialising in:

 

Simons personable service and attention to detail ensures his professional relationships remain strong.  As a partner at Simmons Livingstone, Simon has lead the substantial growth of the firms large corporate space.

Through his sporting connections, Simon also has a strong reputation as an industry leader for professional sports men and women, representing sporting players and companies involved in various professional sporting federations and leagues.

Simon is a former representative golfer, and still enjoys a round most weeks. An avid sports enthusiast, you’ll find him kicking back with a red wine if there’s a good game on.

Tom joined the Simmons Livingstone & Associates team to head the financial planning division in 2015. 

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Tom's extensive network of allied professional services provide the same level of outstanding consultancy, so clients can be assured that any financial problem or opportunity will be addressed with Tom's help.

Outside of work, Tom likes to be outdoors. He plays football and golf amongst other things. You will also find him enjoying good food and good beer with good friends.

Sam is our newest Partner to the Simmons Livingstone & Associates team, working with Tom in our Financial Planning division. 

Sam has a strong passion to educate and inform his clients about the importance of financial planning and getting started early. 

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Sam's greatest asset is his ability to support his clients to better financial wealth using his extensive network. 

 

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