Closure a personal decision

Personal issues are almost twice as likely to lead to the closure of a small business as business management concerns, according to the results of a recent survey.

The Small Business Development Corporation undertook the survey in an attempt to discover the reasons behind small business owners’ decisions to shut up shop.

To this end, Patterson Market Research was commissioned to survey a sample of metropolitan and regional businesses that closed in 2003 and 2004.

More than 400 former small business operators took part and cited a wide range of reasons for their business closure, including a lack of business, management and planning know-how.

Industries included in the study sample were retail trade (17 per cent), construction (14 per cent), property and business services (14 per cent), and personal and other services (13 per cent).

Key findings of the study included:

• 60 per cent of the businesses studied were not making a profit when they closed.

• 52 per cent of respondents who closed their businesses said they did so for personal reasons such as change of lifestyle, retirement, health, or to start a new business or job.

• 29 per cent identified business and management issues such as a breakdown in business relationships, a lack of capital, inadequate preparation or ongoing business planning.

• 17 per cent attributed the closure to uncontrollable issues.

Reasons for closing operations extended beyond retirement and change of lifestyle to include lack of ongoing business planning and insufficient business preparation.

Small Business Minister John D’Orazio said the research would help the Government deliver better quality advisory services to small businesses throughout the state.

“This study is a reminder for people to thoroughly research the feasibility of their business idea,” he said.

“Time spent adequately planning for a business is a direct investment in the future success of the business.”

RSM Bird Cameron partner James Komninos said small businesses faced challenges in a range of categories including compliance issues, staffing, competition from major retail outlets and capital requirements.

“Small businesses find it difficult [in terms of both time and skills] to manage the legislative and compliance requirements,” he said. “For example, the book keeping requirements associated with submitting quarterly Business Activity Statements to the Australian Taxation Office.

“Staff related issues are very difficult to manage, particularly in respect of complex industrial relations laws, an issue on which many small business operators simply do not possess the skills.

“Irregular revenue stream can make staff rostering difficult and sick leave and maternity leave have a very disruptive effect on a business with few staff.

“These difficulties are exacerbated by the current skills shortage.”

Overall the study identified that profitability was a main indicator of whether or not the decision to close the business was driven by choice or was forced.

And the reasons for small businesses closing differed between profitable and non-profitable businesses.

Profitable businesses listed personal choice, retirement or establishing a different business as reasons for closure, compared with those of non-profitable businesses which included insufficient business preparation, management issues, poor marketing and lack of capital.