In New Zealand, about 10% of all small businesses fail in their first year of operation, while a significant number (70%) will fail in their first five years. Some of the most common reasons why businesses fail include poor management, sloppy records, too much or too little stock, failure to plan, misuse of time, neglecting marketing, and general management incompetence among others.

That is why business owners need to have a solid business strategy to help them stay on track and not get lost along the way.

Some of the most important factors that a well-managed business will possess are:

• Proper financial information.

• Uses a written business plan with future development and expansion guidelines.

• Has an adequate product mix.

• Does not rely too heavily on one or a limited group of customers or clients.

• Understands its operating environment.

But how can you be prepared if your business fortunes start to turn?

How can you be ready when the economy becomes sluggish?

How can you recover when there is a dramatic change in technology that has affected your sales?

There are many warning signs on the road to failure that you need to understand and address to ensure that your business can weather any potential storm.

As a trusted tax accountant and dedicated business advisor to many small and medium businesses in Auckland, we have listed some of the problems we see clients facing, along with recommended solutions.

Insufficient capital

If you are starting a business, you should allocate ample budget for operations, marketing and other expenses. If you don't have sufficient capital, you may have difficulty purchasing stock and supplies, which in turn could mean lost sales. Invariably you will also fail to meet your other financial commitments as they fall due.

Partnership problems

Business partners can contribute to the failure of your business. That is why you should be very selective in choosing your business partners. Select your partners the same way you select an employee. Make sure they have the ability to contribute effectively to the business and help achieve its goals.

Too often a partner is selected simply because he/she is a relative or friend or is willing to contribute an amount of capital.

Lack of management expertise

It is not enough that you have a business strategy. It is important that you have the right management expertise to execute all the strategies in your business plan. Don't think that you can get away with learning while on the job. Seek help and direction from a trusted business mentor to guide you in unfamiliar areas.

High gearing

Borrowing money usually cannot be avoided when you start a business. Make sure to keep it to an amount which you are capable of repaying. If you borrow more than you can repay, chances are a greater portion of your gross profit will be directed to paying these financial costs. Cash flow may also be drained by repayments.

Incorrect pricing policies

Too often prices are set to market determinants rather than based on cost recovery and profit generation. Efficient service or added value may be more important than price alone.

You need to make an adequate profit margin to ensure success.

Marketing

Many businesses neglect the importance of marketing. Marketing is important to attract new customers, as well as keeping your current customers updated and engaged.

Cash flow

Cash flow forecasting is very important if you want your business to survive. Without proper and accurate cash flow projections, you won't be able to identify future cash requirements, hence you will be lacking vital information about the financial direction of the business.

Breakeven point

Business owners should know when the business will breakeven. Breakeven is calculated by gross margin (revenue less variable costs) = total fixed costs.

These are just some of the things you should be aware of to help you enhance the chances of business survival.

As a trusted business advisor in Auckland , we can discuss these things with you and provide the most fitting solutions that your business needs. We are also tax accountants who can help you with GST, tax returns, annual accounts and more , using the best accounting software in NZ to provide fast and accurate result.

So if you need help with business planning and small business accounting, we are an accounting firm in Auckland that can help you.

Talk to us today on (09) 576 4166 or book an appointment online to get started.