When is the riskiest time for business?

Winter is coming

Trends show that there is a riskier and less worrisome time for Australian business owners. What's the outlook for winter, and how can you prepare? 

It's arguable that small businesses need financial planning more than their larger corporate cousins. They need to look as far down the road as they possibly can to see if any roadblocks stand in their way.

Large companies need to scan the road ahead, too; however, their broader capital budgets make it possible for most to crash through any blockades without much more than a bump. No, small-business owners need to plan for the worst, even during times when the road is clear and the drive smooth.

It appears that as we head into the middle of autumn, we have a comparatively level road ahead. According to Dun and Bradstreet (D&B), businesses are generally more stable in the second quarter of any given calendar year compared any other period. So, it's certainly not all doom and gloom in the fall season, despite the nights getting colder and the leaves starting their descent from our trees.

The calm before the storm

D&B found that back in Q2 2013, around 9,000 Australian businesses closed their doors for the last time. While it sounds high on paper (or screen), it's actually rather low, considering the country hosts in excess of two million businesses. At the same time, a staggering 57,000 new companies started.

Over the past few years, the number of failed businesses each year has been trending upwards, though Q2 continues to be the safest time for companies, as well as the most encouraging time for startups.

The riskiest period? Q4 has historically been the worst, with between 11,000 and 12,000 closures per quarter. However, Q3 trumped that in 2015, when more than 13,500 companies became involuntarily deregistered.

So autumn - or, more specifically, Q2 - could be considered the calm before the storm, or the smooth bit of tarmac before a rocky patch. While you may find your small business less at risk in the current months, it's time to plan ahead.

Concentrate on cash flow

Business finance should be centred around cash flow, which is where integrated finance comes in. By combining the benefits of invoice discounting and equipment finance, businesses have improved flexibility, debt serviceability, and a faster-flowing cash-flow pipeline.

Last year, ASIC found that, once again, "inadequate cash flow or high cash use" was the top nominated reason for business failure, with 44 per cent nominating it as the main cause. It's higher than the year before and 2013 (both 41 per cent), and continues to be a sticking point for Australian SMEs.

Getting the long-term benefits of equipment finance and debtor finance in a combined finance solution could help businesses unlock funding that might otherwise be unattainable. Businesses looking to prepare for the uncertain winter period ahead should contact the team at Classic for a helping hand on 1300 780 895.