There are many challenges facing small businesses and, with the New Year well underway, now is a good time to start addressing these head-on in order to build a stronger business.
Whether you are a small enterprise just starting out or a mature business looking for additional growth, there is no shortage of challenges that will affect your ability to grow. However, these conditions can be overcome if owners invest the time and effort into planning for the future to realise new growth potential.
To address this need, BDO has highlighted five of the biggest challenges that organisations should consider if they want to succeed in 2016.
1) Cash flow
One of the biggest concerns for many small businesses continues to be cash flow, with the time it takes to receive payments playing a major role in how well companies can meet their ongoing expenses.
Fortunately, in the months leading up to the end of 2015, there had been some improvement with receipt of payments at least according to research from Dun & Bradstreet. The company found that invoice payment times had plummeted considerably, with the average invoice currently settled within 45 days of being issued. This compares to 56 days recorded in the first quarter of 2014.
While this is an improvement, small businesses will still need to watch their cash flow, especially into the New Year. The holiday period can slow B2B payments, with many companies facing a slow start to the year.
Planning ahead and carefully managing cash flow can help to ensure that these concerns don't affect a company's longer-term viability.
2) Digital Strategy
The ever-growing digital realm is continuing to reward organisations that have a comprehensive digital strategy while also making it harder for organisations that aren't investing in this area to gain traction.
2015 saw the introduction of mobile friendliness to Google's website ranking algorithms, and with good reason. Devices like tablets and smartphones are fast becoming the devices of choice for consumers and are increasingly common in business.
The division between those businesses that have a strong digital strategy and those that don't will become clearer in 2016. Staying ahead of developments, like the growth of mobile devices, will ensure that companies manage this trend effectively.
The drive to become more innovative has certainly increased for Australian businesses. As the pace of change within the economy has grown, organisations are forced to find new processes and opportunities to unlock growth potential.
While small businesses are proving to be incredibly innovative - accounting for 90 per cent of the country's research and development spending according to the Reserve Bank of Australia - smaller firms are still less likely to engage in innovation than larger firms.
However, according to the Organisation for Economic Cooperation and Development, its report found that small businesses are becoming more innovative, with lower barriers to entry in many sectors making it easier for businesses to break new ground.
Taking advantage of R&D grants is an obvious step in the innovation process if your business is eligible.
4) Succession planning
Succession planning is an issue for companies of every size, with businesses looking for new ways to ensure they have people in place to cover key responsibilities.
Family businesses, in particular, are struggling to plan for the future, particularly in relation to senior roles and preparing for the next generation. This was underscored by figures from the Family Business Institute which found that only 30 per cent of family businesses last to a second generation, while a mere 3 per cent operate to the third generation or more.
In 2016, small businesses should seriously consider how they will plan for the future in areas like succession and business continuity.
5) Overseas expansion
Business growth can no longer be limited to Australia alone and many are now looking for new opportunities overseas. While many small businesses might feel they are too small to consider engaging with international markets, falling trade and investment barriers mean this is an increasingly appealing option.
Towards the end of 2015, the Federal Government entered into a number of key trade agreements. The deal with China has complemented further agreements with Japan and South Korea that are already in force.
Earlier in 2015, the Export Finance and Insurance Corporation released a report into the overseas markets that are considered the most appealing to the country's businesses. Top of the list for international trade was China, with 13 per cent of respondents expecting the country to be the main area of revenue growth over the next two years. Other high-ranking countries included Indonesia (6 per cent), the UK and India (both 5 per cent). Further results found that 71 per cent of companies are already exporting to a market that has a free trade agreement in place with Australia.
Overseas expansion may well be the key to future competitiveness.
The importance of planning
While these five issues all play a major role in business success, they can all be addressed if businesses put the effort in now. This means taking the time to plan ahead and to seek professional advice to ensure they aren't left in a difficult financial position.
By taking these steps now, business owners will see a much smoother start to 2016 and set their business up for long-term success.
To assist you with your business planning, BDO has developed a complimentary Business Planning Toolkit.
Business Planning Toolkit
For further assistance in relation to business planning please contact one of our Private Client advisers.