Research into the reasons for business failure suggest the following:

	Inadequate planning (or complete lack of it);
	Inadequate amount of invested capital/overgearing;
	Lack of management expertise;
	Lack of or poor management succession planning;
	Lack or poor information systems;
	Inadequate record-keeping;
	Inadequate cost control;
	Incorrect pricing structure;
	Overtrading or growing too fast;
	Cash flow problems;
	Price/margin competition and lack of market knowledge;
	Over reliance on a single (or a small number) of customers or products.

In their National Insolvent Trading Program the Australian Securities & Investments Commission (ASIC) outline some factors which tend to indicate insolvency. A company or business is said to be insolvent if it can't pay its debts as and when they fall due.

Key Indicators of Insolvency

	poor cash flow, or no cash flow forecasts
	disorganised internal accounting procedures
	incomplete financial records
	absence of budgets and corporate plans
	continued loss-making activity
	accumulating debts and excess liabilities over assets
	default on loan or interest payment
	increased monitoring and/or involvement of financier
	outstanding creditors of more than 90 days
	instalment arrangements entered into to repay trade creditors
	judgement debts
	significant unpaid tax and superannuation liabilities
	difficulties in obtaining finance
	difficulties in realising current assets (eg stock, debtors)
	loss of key management personnel.

To get more detail on ASIC's National Insolvent Trading Program click here.

The good news in all of this is that many of these problems or indicators can be solved. Planning, proper record-keeping and management training can be the difference between success and failure. In particular, developing a sound business plan can help your business achieve success or perhaps even lead to the realisation that you should be (or shouldn't be going) in business (or that particular business). This in itself can be considered success by preventing you from placing your financial future on the line for a potentially unsuccessful enterprise.

We can assist you with these matters. Just call.

DISCLAIMER:

The information provided is not substitute for professional advice. We disclaim all responsibility for full or partial reliance on the information provided. Obtain advice from your accountant or financial adviser before proceeding.