Your Small Business Survival Guide

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Last financial year, 220,000 new Australian businesses set up shop. Here, experts in security, finance and recruitment share the small-business wisdom that these companies need to flourish.

When a car-parts dealership in rural Victoria decided to finish a franchise agreement, the two parties ended up at loggerheads over how to untangle the deal. An arrangement was nutted out after the pair worked with a mediator – but the franchisee reneged.

When a small financial services firm in Sydney went looking to hire, the perfect candidate emerged – but he was ruled out because he had the same surname as someone already at the company and they “didn’t want to confuse customers”.

Small businesses are the beating heart of Australia’s economy – the Australian Bureau of Statistics (ABS) says that seven in every 20 GDP dollars comes from them – but every heart has its limits. According to the Australian Securities and Investments Commission (ASIC), more than 220,000 new companies typically set up shop each year. But on average two out of five small businesses won’t survive past their fourth birthday, the ABS estimates. So what do these hopefuls need to know? How can they avoid the pitfalls? We asked the experts about the seven Cs that spell success.

1. Cashflow

Half of all invoices from Australian small businesses are paid late – $115 billion worth.

Xero’s Paying the Price analysis, released in June, stresses how late payments limit the ability of a small business to grow or pay its own bills. Trent Innes, managing director, Australia and Asia, of the accounting software firm, recommends short payment terms. “Businesses default to 30-day terms, whereas the smarter ones are using seven or 14 days.” While not every client will agree, it doesn’t hurt to ask up-front, says Innes. “Those with shorter payment terms get paid faster.”

He also suggests small businesses use the invoice reminders that feature in modern accounting systems. Innes says companies that send electronic invoices embedded with a payment option, such as Stripe or PayPal, are paid 55 per cent faster. “It turns a 22-day wait into a 12-day wait.”

2. Conflict

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When conflict calls – over a late payment or disputed delivery – don’t delay, says Kate Carnell, the inaugural Australian Small Business and Family Enterprise Ombudsman (ASBFEO).

Carnell says many disputes arise because an invoice is missing an ABN, doesn’t have a delivery date or invoice number, or is sent to the wrong person and either goes in the “too-hard basket” or floats between various inboxes without being paid.

A couple of days after sending the invoice, “particularly for large amounts and with companies you haven’t dealt with before, follow up with a phone call to make sure there are no problems”, she says.

Small businesses need to consider whether it’s worth supplying to serial late payers. If reminders and nudges don’t work there’s a dispute resolution tool on ASBFEO’s website. “We will follow up within days,” says Carnell. “It’s amazing how often companies pay when we send an official-looking letter. They realise these guys aren’t just going to roll over.”

If the first letter fails or there is a genuine dispute, the ASBFEO will investigate further and, if necessary, call for mediation. “Nine times out of 10 there’s an outcome acceptable to both sides. If mediation doesn’t work, unfortunately it’s off to the court system.” But acting fast remains critical; even a court can’t solve a problem if one of the parties has gone out of business.

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3. Community

About 4.8 million people work for small businesses, according to the ABS, but the “people piece” is fraught, says Nina Mapson Bone, managing director of recruitment firm Beaumont People. “We did some work with a medium-sized financial services organisation with 20 staff members. It was looking for somebody and had a very fixed idea on who it wanted, not just in terms of skills but background and personality type – because that’s who it had always had.”

Mapson Bone doesn’t think the firm was being “deliberately discriminatory” but she points to it overlooking “large portions of talented people” because it was blinkered.

Finding the right staff starts with making the right impression, she says, stressing that good candidates will have checked out a business’s online profile and social media. (A site that hasn’t been updated in five years sends a bad signal.) And it pays to be clear in job advertisements about company benefits and any flexible work programs.

Mapson Bone says many industry associations offer their members free templates to guide recruitment and development. She also recommends the Atlassian Team Playbook, which the software company has made available online for free, to help even the smallest business foster a strong culture.

She suggests using an online recruitment tool, such as Seek, to set salaries; plug in the salary band you’re offering and see what job titles come up. If you have to move up a salary band to find the type of talent you’re looking for, you know it’s time to increase the remuneration offer.

4. Counting

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It might be tempting to rely on a shoebox to store receipts and a spreadsheet for record keeping but these are poor choices, says David Smith, director of Sydney-based accounting consultancy Smithink. He advises using cloud-based systems, such as Xero, Intuit and MYOB, from day one.

They create instant transparency for the business, bookkeeper and accountant and, says Smith, streamline tax time and rein in accounting costs. “When you get to the end of the financial year the ledger is in better shape – there are fewer errors and the accountant can start working on year-end compliance in a more efficient way.” And because most cloud accounting systems let small businesses photograph invoices and store them online, if the bookkeeper has a query about a transaction, the documentation is all there.

Smith also favours the reporting dashboards that can visualise financials in near-real time. “You have graphs showing how accounts receivable is improving in terms of number of days or what is happening to the gross profit margin.”

The Australian Tax Office (which itself hosts a series of free online webinars and learning modules) also provides small businesses with benchmarking tools. Company managers can download the ATO app, input their data and compare their performance with similar firms. The ATO also offers an online viability tool that helps to assess a small business’s prospects.

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5. Communications

Blowing your own horn can be a daunting prospect – and knowing how loud to blow and who needs to hear it even more so.

Kate Engler is a publicity mentor and the founder of the Meet the Press Masterclass, an event where small businesses pitch their stories to journalists, who explain what they look for in a good story. Engler says although many small businesses believe they need a publicist to help with communications, “Most PR agencies have a retainer-based system – about $3000 to $6000 a month – and a minimum six months’ engagement. This puts it out of reach for many small businesses who then, sadly, put a red line through free media.”

Instead, Engler says, small business owners can approach a journalist directly to tell their story. But don’t mistake telling a story for selling a story. “One of the biggest mistakes is talking to the media like you would a prospective client. Nothing will have a journalist running for the door faster than a sales pitch.” Instead small businesses need to tell their backstory – what led them to start and grow the company.

Engler also recommends small business owners try the SourceBottle website, where journalists seek expert input and insight. Following journalists on Twitter can also reveal new media opportunities and outlets; SmartCompany, for example, focuses on small businesses and startups.

6. Creating

Getting a small business up and running takes a huge effort and keeping it there demands the same, says Petr Adámek, CEO of the Canberra Innovation Network. “Small business cannot be local only. Every business has to be a global one as you’re competing with offerings from around the world. Businesses on the same street as you will be spending more and more money with companies overseas.”

Carving out time to innovate can be challenging in a time-strapped small business but it’s critical, says Adámek, and must have a customer focus. He proposes Rob Adams’ book If You Build It Will They Come? as a good starting point. It advises companies to interview customers and prospects about what they actually want, before starting to create something new.

Even then, resources are finite. Adámek likes the approach of one business he worked with that held a Monday morning “kill a puppy” session to decide which ideas on the drawing board made most sense and which the least so it could focus on the best ideas and use resources efficiently.

He also favours hiring people to stretch the organisation. “Hire people on culture – young people, new talent – and let them define a little bit how you bring in new technologies. The next generation of employees can come up with solutions that are quite different.”

7. Cyber

Many small businesses think that they don’t need to worry about a cyber attack. They’re wrong. While the Privacy Act doesn’t cover most small companies with revenues of $3 million or less (unless they’re a health provider or trade in personal information), a data breach or cyber attack can still bring enterprises to their knees.

The ASBFEO, which offers a free best-practice guide for cybersecurity on its website, says 43 per cent of attacks are against small businesses and that during the 2017 spate of ransomware demands,
22 per cent of small businesses affected could not continue operating.

Ransomware, where a hacker encrypts a company’s data and refuses to provide the key to unlock it until a ransom is paid, remains a problem – but small businesses that have up-to-date backups are better placed to recover than those that don’t.

Corey Nachreiner, CTO of cybersecurity firm WatchGuard, says criminals target small businesses because they don’t have the same level of protection as large companies, though there are now affordable pay-as-you-go security services for all sizes of organisation.

Besides firewalls and anti-malware programs, Nachreiner says businesses should consider multi-factor authentication so anyone accessing their computer system has to prove his or her identity with more than just a password and username, often via a message sent to a mobile phone.

Small businesses also need to remind staff of the dangers of spear phishing: cleverly worded emails that encourage an employee to open an attachment or click on a link loaded with malware. Particular caution is needed around emails that seem to come from the financial controller. A phone call will confirm if a request to send money is genuine or is actually an invitation to fund a hacker’s account.

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