Every financial year the Australia Bureau of statistics releases data on the number of businesses that enter the market and the total number which exists the market. we will aim to dissect the data and provide some context behind the entries and exits of businesses in Australia within the past four years.
figure 1.1 represents the net retention for a chosen financial period, this includes total number of entries into the market for a financial year and retrospectively the accumulated exists. The exists represents a compounding number from prior financial years entrants which has existed the market within the current period.
FY 2018-19 we had 346,946 entries into the market with a large sum of exits concluding with a 17% retention. The small number of entries correlate with major events like the COVID-19 pandemic which heavily affected the small to medium size businesses.
FY 2019-20 we had 336,499 new entries ,the lowest level of participants in three years and 291,049 exits with only 14% retention. FY20 was the peak of the pandemic with mass lockdowns which forced many business owners to close as turnover went down below 50% and evidently impacted cash flow even with government grants provided by local and federal governments.
FY 2020-21 saw a rebound to normality with 365,480 entries into the market and 277,674 exits, this was a 10% increase in retention from FY20 at 24%. With the ease of the lockdown restrictions and cash injection by the government we saw business confidence recover.
FY 2021-22 The number of entries of business in the market compared to FY21 increase by 29%, this was the largest jump from the prior 3 years however we also saw a greater number of exist 305,085 compared to the average of 285,000 from the past 3 years but we had a 35% retention.
With the exception to uncontrollable variables like the pandemic, what are the top reasons why businesses fail ?
5 Reasons why small businesses FAIL.
Based on data presented by Bizcover and Bank of Queensland outlines 5 common reasons in which businesses exist.
1.Lack of Market research
Researching the demand of the service or products was a common reason business failed in the first year of operation. It is imperative for business owners to invest resources in the feasibility study of the service or product before further allocation of funds are committed to the project.
2. Business plan
Before committing to a project, mapping out an objective business plan is essential to the long-term success of the business. The emphasis on “Objective” is to avoid information biases in preparing business plans.
3. Not having the business funding they need
It is expected that outgoings will exceed the incoming funds within the first year, forecasting and projections will assist in understanding the sum of liquidity needed to overcome unexpected losses within the first 1-2 years.
4. Financial Mismanagement
Relevant, Reliable, and comparable financial reporting in conjunction with a robust budget to complement the company’s objective will be the best possible solution in avoiding financial mismanagement. However if the personnel within the business are financially illiterate, our exercise becomes redundant in terms of accessing the financial reports. It is essential to educate oneself or seek a financial advisor.
5. Poor Marketing
Before deciding to invest in a marketing campaign it is vital that you understand your target market and then build a marketing plan to directly attract your customers.
Today we have a variety of media outlets to communicate your products or services which can be an advantage or disadvantage. Certain media outlets will attract a specific demographic on to their platform for example people who are interested in motor vehicles will visit car websites, if you can partner with an agency that will compliment your products or services it can return high dividends. However in contrast selecting the wrong media channel could be devastating for a startup.