Written by Adam Lysle in March, 2007

There is an ever increasing awareness of the potential ramifications for the ongoing problem of collapses of corporates and small to medium enterprise.

Recent research has revealed that there are a number of contributors to further pressures on the survivability of companies at every level. The contributing factors include the increased focus by government departments & agencies such as the Australian Taxation Office and the Australian Securities & Investments Commission with respect to Compliance and collection of statutory debt. These organisations are only an example but certainly potentially have a significant impact.

The research has revealed that a large number of individuals subjected to major corporate restructuring or downsizing within their traditional careers are jumping into small business operations with little or no experience in preparing for and structuring themselves correctly before they even start. Further, there is an increasing element of people becoming mystified by the flashing lights of large big brand retail franchise operations and signing off on deals without first engaging on a thorough due diligence process.

All of this combined produces startling statistics like 35% of all small businesses failing within the first 18 months of incorporation* and 16,000 companies subjected to formal insolvency appointments across Australia every year.

It goes without saying that there are a number of people who do conduct appropriate levels of enquiries before jumping in too soon, but if only everyone followed suit, the statistics mentioned earlier would surely reduce. An example of proactive prevention is when an individual seeks professional advice from their local accountant and/or solicitor and actually engages them to conduct all of the proper enquiries about the vendor or the franchisor before they even get to the table to negotiate a deal. Such actions have prevented major issues after a deal is struck and in some cases, prevented any discussions taking place whatsoever.

Survival in small business does require prior planning, a significant injection of capital and a healthy provision of working capital. Without these three minimums, survival is limited at best. In addition to these minimums is the requirement to invest in adequate and appropriate advice at the commencement and throughout the businesses term of life.

There is still a sizeable level of confidence within the community and economy and many people are encouraged to harness and capture this to set themselves up in business. A word of caution though is not to become a statistic as the side effects of not surviving are very unpalatable indeed.