Whether you’re thinking of starting, buying, or perhaps you’re already running a small to medium business, you’re in good company. In Queensland alone, there are 510,444 small businesses, with 97.1% classified as small businesses turning over less than $2 million annually. Around one third are run by female business owners, reflecting national figures of approximately 35% of total businesses.
While running a business can be exciting and rewarding, it also comes with a unique set of challenges. There are seven key issues that small business owners commonly face, and developing a strategy to address them can set you on the path to not only a profitable business but also a business that is saleable on your terms.
Start with the fundamentals
No matter the stage of your business, there are foundational elements you should consider:
- Your business structure
- Asset protection
- Tax efficiency
- Business loan structures and interest rates
- Pricing your products and services for profit
- Marketing, staffing, technology, and insurance
- Your personal wealth management strategy
While all of these factors are important, one consideration that is often overlooked is your exit strategy. Can your business be sold on your terms, at the value you need to fund your retirement or next venture?
Owner reliance: The number one concern
Surprisingly, the top concern keeping small business owners awake at night is not cash flow – it’s owner reliance. Simply put, can your business run without you? A survey of 2,791 business owners found that high owner reliance was their biggest concern, with only 5% saying their business could operate independent of them.
Owner reliance is critical because it affects both sustainability and growth. Many people start businesses for freedom and lifestyle flexibility, yet the reality for many is that their business cannot function without them. A business overly reliant on the owner may struggle to perform consistently, generate profit, or grow in value.
Systems, processes and policies
To overcome owner reliance or personal goodwill, consider implementing a strong staff structure supported by clear systems, processes, and policies, all underpinned by a culture of training and development. Even with these measures, it’s worth asking: what would happen to your business if you stepped away? Only 23% of owners say their departure would have no impact.
Profitability, cash reserves and cash flow
Profit is the lifeblood of any sustainable business. Beyond paying yourself a market salary or shareholder dividends, a profitable business generates positive cash flow, reduces reliance on lenders, and provides the resources to reinvest and grow.
Yet 76% of business owners report limited or no cash reserves. Sufficient cash reserves are crucial not just for emergencies but also to seize unexpected opportunities, whether that’s purchasing new equipment, expanding services, or acquiring another business.
Understanding your business value
For many small business owners, the business is also their primary source of retirement funding. However, 42% of owners lack clarity on what their business is worth. Understanding your business’s value and identifying any gaps allows you to implement strategies to increase both financial and non-financial value, ensuring the business can fund your retirement and be saleable on your terms.
Customer sensitivity
Another risk for small businesses is dependence on a limited customer base. Around 33% of small businesses generate more than 40% of their sales from their top clients. While key customers are valuable, over-reliance can create financial vulnerability. Diversifying your customer base reduces risk and enhances business value.
Planning for Success
Starting, buying, or reviewing a business requires careful planning. Ask yourself:
- Is my business structure optimal?
- Are my assets protected?
- Can my business generate sustainable profit?
- Is my business saleable when I want it to be?
- Have I considered both financial and non-financial performance indicators?
Remember, 9 out of 10 small to medium business owners are entirely dependent on their business for income and wealth. Understanding these seven key areas – from owner reliance to customer concentration, profitability, cash reserves, and exit planning – is essential for reducing risk, building value, and securing your future.
Work closely with your trusted advisors, ask questions, and explore the drivers of value in your business. With careful planning and strategy, you can create a business that is not only profitable but sustainable, saleable, and designed to support your personal and professional goals.
If you’d like a comprehensive, transparent business valuation, reach out to our team today.
This article was first published in its original format in WFO Magazine by Tania Fitzgerald, Senior Business Valuation Analyst at Azimuth Partners.
