Today I want to share a brief story of a young couple operating a business. It is a real story about real clients that highlight planning principles in small businesses.

Case Study

Some years ago, a young couple operating a business asked me to look after their tax affairs. The business had been operating for about two years. The husband was the primary income earner who was well skilled in his industry. The wife took on the administrative duties and maintained a good set of books that recorded all the transactions.

After finalising and lodging the annual tax returns, the wife booked a one-on-one appointment with me to discuss some business concerns. She felt her husband was overspending on unnecessary business items. Spending on things like tools, equipment, and vehicles, took priority over ATO financial commitments, potentially exposing the business to financial distress. Feeling she was ineffective in communicating directly with her husband, the wife courageously asked for my help. We agreed that I would call and ask the husband to come in for a chat.

At that meeting, I shared those concerns with him, explained the likely outcome of poor financial management, and suggested a review of business practices. Regretfully, the next time I saw them, three years later, they came to me to help finalise outstanding tax returns. Both the business and their marriage had failed, and they had debts they could not pay.

The outcome is this case was not a happy one, but it could have been different. The business had all the right ingredients for success: solid industry experience, reliable suppliers, consumer demand for their product, and well-positioned for growth. Suppose the husband had agreed to work on his management/business skills three years earlier. In that case, the outcome could have been very different.

Business principles

This story highlights some business principles that can help navigate through some of the challenges of small business:

  1. Planning. Identifying business processes can help you manage your business. What are your skills and talents, do you need to review your business skills, are you open to seeking help to grow your business?
  2. Cash flow. Cash flow is critical. You can have all the profit in the world. Still, if your cash flow is out of control, your business will likely experience financial distress. It is critical to get the right balance between collecting and spending. Having a cash reserve can relieve much stress.
  3. Finance. Equipment finance is reasonably easy to obtain. However, banks will not support small business operators with overdrafts or short-term funding. Accordingly, wherever possible, use finance to fund equipment purchases and retain cash for reserves.
  4. Compliance. When small businesses start to experience financial distress, they inevitably begin to neglect ATO compliance. It is better to maintain compliance as much as possible and keep lines of communication with the ATO open.
  5. Networks/business coaches. When small business operators actively network with other businesses, it helps create relationships with like-minded people. Likewise, building a solid relationship with your accountant is important, and seeking business training/coaching will help prepare you for the challenges.

Companies Direct will not just set up your new company or business structure, it will also help you start your business on the right footing. Our Wired For Success Business Startup Kit will answer all your questions and more. Call 07 32083888 to book a consultation.


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