Poor management leading cause of small business failure

Poor management and a lack of leadership and planning are the main culprits for the failure of Australia’s SMEs, a study by the Australian Centre for Business Growth showed on Tuesday.

by | 22 Nov, 2018

17 companies wound up, $600k entitlements to be recovered

Among the CEOs of small and medium companies whose businesses have failed, 25 per cent cited poor leadership and management, and a lack of planning as the reasons for failure, a study by the Australian Centre for Business Growth (ACBG) revealed this week.

As part of the study, the ACBG asked 650 CEOs of small and medium companies over a four-year period if they had ever been part of a company that has failed, or if a business of their own has gone under.

A common thread was CEOs not understanding their roles as company leaders, Dr Jana Matthews, director of the ACBG, said.

“Leaders need to plan and set the company’s direction, communicate, build an executive team, create a high performance culture of execution, manage and optimise corporate resources, including employees and financial resources, customers, suppliers, vendors, advisers and financiers,” she explained.

“When these leaders do not understand or fulfil such responsibilities, companies fail to grow, and sometimes fail completely.”

According to ACBG, the second most common reason for company failure is a lack of market research, with 17 per cent of CEOs reporting they did not know how or did not do enough market research, marketing or sales.

Poor financial management followed with 14 per cent, while 13 per cent of CEOs were blindsided by issues such as fire, drought, changes in interest rates, regulations, or global trends, and had no risk mitigation plans.

A total of 11 per cent said poor governance structures, problems with partners or family members led to failure, while 7 per cent cited product or service problems and 6 per cent highlighted the poor management of people.

The Institute of Public Accountants said recently in its Australian Small Business White Paper, published in partnership with the IPA-Deakin SME Research Centre, that small businesses have a higher failure rate than their larger counterparts.

IPA explained that SMEs’ managers face many challenges in managing their human resources, while many also fail to appropriately acknowledge the importance of innovation to the growth of their enterprises.

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