Why Small Businesses Fail in Australia

Originally Published Nov 7, 2020

You’ve probably heard it before. Most small business in Australia fail -- many within the first year alone.

While some of the reasons Australian businesses fail is out of our control, many factors are preventable. Hint: Don’t skip the business plan!

Here, where exploring the main reasons why most new small businesses tend to fail, what to do if you realise that your small business is joining the entrepreneurial graveyard, and how to up your chances of success.

Why Small Businesses Fail in Australia

Why Most Businesses Fail

In terms of percentages of businesses that fail, everyone seems to have a different number.

Some claim that one in three new small businesses fail in the first year with three out of four going under in the first five years.

Others claim that 97% of all Australian small business will fail. Still, others think the number falls at around 60% of failure in the first three years.

The point is, most small businesses fail. But why?

According to a study from the University of Technology Sydney, the top reasons small businesses fail, in order of frequency, are:

  • Financial mismanagement
  • Poor management
  • Poor record-keeping
  • Sales and marketing issues
  • Staffing issues
  • Failure to seek external assistance
  • Overall economic conditions
  • Personal factors

Other factors that contribute to most small business failure include:

  • Cashflow issues
  • Growing too quickly
  • Lack of knowledge
  • Being only in it for the money

Overall, businesses that have failed seem to get things wrong from the start. Most of the reasons within your control that put your business at risk can be dealt with during the planning stages.

What To Do If Your Business is Failing

There are two paths to take when figuring out what to do if businesses fail. You can either sort out how to get out of a failing business by changing your direction or close the doors and admit defeat.

If your business is failing, it’s best to be honest about the situation. Don’t let your ego get in the way and tell yourself everything is fine when it’s certainly not. There’s no shame in making adjustments, even if those adjustments mean closing the business.

Understand What’s Gone Wrong

Before you’ll be able to decide on what to do about your failing business, it’s important to understand the problem -- or problems.

Are there cash flow issues? Perhaps you’re struggling to find a strong team. Do you need to go back to the drawing board with your business plan?

Figure out where you’ve gone wrong to give you somewhere to start.

Take an Objective Standpoint

When trying to save your failing business, there’s no need for rose coloured glasses. Be as objective as you can about where you can cut costs and make changes.

For example, perhaps you went into business with your cousin and it’s just not working out. You’ll need to leave your family baggage at the door and make the best decision for the business, leaving the emotions out of it.

Invest in Your People

Any successful business owner can tell you that their power is in their people. That’s where you should invest any remaining resources to save a failing small business.

It’s possible that your staff doesn’t fully understand your mission and investing in better employee training could turn things around. Better staff perks might also encourage your team to come to work for more than just a paycheck. Maybe you could use some leadership training yourself to help your employees.

With a more determined group of people on your side, it can make all the difference.

Focus on Your Customers

Too often, small business owners focus more on their own wants, needs, and preferences without listening much to what their customers want, need, and prefer.

Ask yourself, is this what I want or what my audience wants? If there’s a discrepancy, it’s a signal to get to work.

Try a New Approach

Once you’ve gone through all these steps, it might be time to try a totally new approach. Perhaps instead of selling products, you could pivot to selling memberships. Or instead of owning a business with a storefront, you might move into the online space.

Go back to the start and look at your original idea with a new set of eyes -- and whole lot more experience.

Plan Where Your Assets Will Go

If you’ve made the tough decision to close your doors, congratulations! That means you’re letting go and moving on. Again, there’s absolutely no shame in that. It actually takes a stronger person to admit defeat.

In this case, however, you’ll want to plan carefully where your assets from the business will go. Will you pay your staff a severance package? Will you put it into a new business idea? Or will you save it for a totally new venture?

Start the Next Chapter

As the saying goes, when one door closes, another door opens. That’s so true for failed businesses as well.

In fact, most successful business owners have a few failed businesses under their belts. We just hardly ever hear about all the businesses that have failed.

Look at closing this chapter as the start of something new. Take what you’ve learned and put it toward your next big idea. The only real failure, after all, is never having tried.

If you’re business is struggling and you’ll like to speak to someone about your options, reach out to our Business Consultants for your FREE Business Health Check.

We’ll talk to you about where things are going wrong, the possibilities of turning your business around and discuss possible exist options too.

Click the ‘Enquire’ button below to reach out today

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How to Make Sure Your Small Business Succeeds

The truth is, there’s no big secret to a successful small business. Unfortunately, a lot of good luck is involved. The industry you’re interested in has to be growing and the economy has to be stable.

In these ways, it should definitely not be looked at like a personal failure if your first small business (or two) is a flop.

However, there are a few things you can do to give your business far better chances of success:

These tips may seem obvious but the truth is, they really do matter.

Owning a small business takes constant trial and error and a whole lot of humility. It’s not for everyone (and that’s ok!). But if you think you’re cut out for it, keep going. After all, failure is just part of the process.

We found the following sites especially useful when I was researching this topic, check them out: UTS Start Me Up Business Guide, Bemedia, Inside Small Business, Entrepreneur.com

For additional resources, check out our other blog articles:


The information provided on this blog is intended for educational and informational purposes only. It is not intended to be a substitute for professional advice or treatment. Always seek the advice of a qualified professional with any questions you may have regarding a medical condition. Never disregard professional medical advice or delay in seeking it because of something you have read on this blog.

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