Australian businesses should avoid these five financial pitfalls
“Chasing every new business opportunity that goes past the door” can usher in major issues for South Australian SMEs, Adelaide-based accounting and taxation firm Nieuvision has said.
Chartered accountant at Nieuvision, Robert Paprzycki, said while new business generation was important, taking on too much work in a tough economic environment was a risky strategy.“Winning new business is vital to success, but growth hungry SMEs can often be guilty of biting off more than they can chew.
“Business selection is one of the critical challenges that SMEs face during their growth phase.”
Nieuvision has highlighted some of the most common financial pitfalls for SMEs which include:
1. Taking on too much
Paprzycki said small businesses could jeopardise their profitability and viability by taking on too much work.
“One of my clients worked part-time, around 20 to 25 hours per week, but would continue taking orders from customers even when they didn’t have capacity to fulfil them,” he said. “They weren’t pricing their products appropriately and with too much time spent completing orders, they lost money and didn’t meet their customers’ expectations.”
2. Disorganised bookkeeping
Paprzycki said business owners that delayed critical bookkeeping tasks could hurt their hip pocket.
“Businesses often delay completing their BAS [business activity statement] to focus on serving their customers, but this means they’re left with one large, unbudgeted payment at the end of the year rather than four manageable payments across the year,” he said.
“There are accounting services apps available, like Xero, which sync with the business owners bank accounts to make managing these payments much easier.”
3. Poor cash flow management
Paprzycki said poor cash flow management meant many small businesses had their bank accounts run dry.
“When a small builder takes on a project, they have to order the materials and subcontract other tradespeople,” he said. “The business might look profitable on paper but the owner won’t receive their payment from the client for between 90 and 150 days.
“These businesses should consult their banker and utilise overdraft facilities to bridge the gap.”
4. No growth plan
Paprzycki said many businesses struggled through the growth phase, trying to run before they can walk.
“We often see businesses become insolvent and wind up because they started expanding their business without ensuring they have a sustainable market or client base,” he said. “As their costs get higher, their income doesn’t increase at the same rate.
“Not budgeting for expansion is also a common financial trap for small businesses. Recruitment, marketing, higher stock levels – these are just some of the expansion costs to consider.”
5. Payroll mistakes
Paprzycki said payroll and employment management were not straight-forward tasks and small business owners shouldn’t go it alone.
“There are many different government regulations which businesses must adhere to, including minimum wage levels, award rates, superannuation payments and employment and termination contracts,” he said.
“This is best left to the professionals, as employers risk severe penalties and leaving themselves out-of-pocket if errors are made. If they don’t have the expertise, business owners should consult a professional for these procedures.”
Timeline: India takes unicorn leap with six in five days
We chart an historic week in India’s tech industry, where in just five days, between 5-9 April 2021, the country achieved six new unicorns, bringing India’s total to 10 in 2021 to date, an immense unicorn leap from just seven in 2020 and six in 2019.
April 5: Meesho
India’s first social commerce unicorn, Meesho raised US$300m from SoftBank, Facebook and Shunwei Capital, giving the Bangalore-based startup a US$2.1bn valuation, a threefold jump from its previous funding round in 2019. Founded in 2015 by two IIT-Delhi graduates, Meesho connects producers and resellers, helping small businesses sell through social media. It has 45m customers and has enabled 13m entrepreneurs to start their online businesses with no investment.
April 6: CRED
Founded just over two years ago, Bangalore-based credit card repayment app CRED raised US$215m from Falcon Edge Capital and Coatue, nearly trebling its valuation to US$2.2bn from its January US$80m round. Allowing customers to pay off their credit card debt while earning CRED coins which they cash in for rewards, CRED has grown rapidly during COVID-19, doubling its customer base to nearly 6 million in a year.
April 7: API Holdings / Groww
The first epharmacy startup to gain unicorn status, PharmEasy (API Holdings), which has digitised 60,000 brick and mortar pharmacies and 400 doctors across India, raised US$350m in a round led by Prosus Ventures. Founded by four former Flipkart employees as a way of making investing simple, investment platform Groww became India’s second-youngest fintech unicorn, raising US$83m in Series D funding led by Tiger Global, quadrupling its previous round in September.
April 8: ShareChat
New Delhi-grown social media startup ShareChat, founded in 2016 by Mohalla Tech raised US$502m from Lightspeed Ventures, Tiger Global, Twitter and Snap taking its raised total over six rounds to US$766m and pushing its valuation to US$2.1bn. The funding will be used to grow its user base and short video platform Moj, which launched in 2020 following TikTok’s ban in India. The regional language startup claims 280m users.
April 9: Gupshup
AI-led conversational message startup joined the unicorn club after raising US$100m from Tiger Global giving it a ten-fold valuation of US$1.4bn. The smart messaging platform, which has seen accelerated growth during the pandemic, was founded in Bangalore in 2005 by serial entrepreneur Beerud Sheth, whose online freelancing platform Elance is now listed. Gupshup’s API enables 100,000+ businesses to build messaging and conversation experiences across 30+ communication channels.