10 collapses, 10 lessons: How to avoid your business going under

Thousands of companies collapse each year for a myriad of reasons. Some struggle with cash flow, others try and expand too quickly and some fail to plan for the future.

But one thing all these companies teach us is it doesn’t matter how old or how young a business is, it’s never invulnerable.

The past 12 months have seen a number of notable collapses, so here’s a look back the past year of collapses and what lessons can be gleaned to help prevent more businesses from ending, often prematurely, at the corporate undertakers.

1. Timing is everything when it comes to expanding

An ill-timed expansion can send any business to an early death, even those which have been around for decades.

Family-owned retail fashion business in New South Wales, Brenstew, was founded in 1936, but was placed in administration in August last year with tough trading conditions and a poorly-timed expansion to blame.

Brenstew, which traded as Blowes Menswear, The Wardrobe and URXs, turned over more than $6 million annually, but administrator Paul Burges of BRI Ferrier told SmartCompany at the time a decision to expand to Port Macquarie was “untimely”.

“It was a drain on company resources,” Burges says. “You don’t have to get much wrong in the retail space to have pretty dire consequences. It’s been under pressure from historically low consumer sentiment as we’ve become a nation of savers and there is less money flowing through the economy.”

2. Even if your sector’s competitive, don’t enter into unprofitable contracts

In May last year administrators were appointed to 43-year-old cleaning business Swan Services after the business suffered losses from a number of unprofitable contracts.

Despite having a turnover of $92 million, the company collapsed and administrators from Pitcher Partners were appointed.

“We are instructed that the company did have a number of unprofitable contracts and had moved to renegotiate to make them more profitable and was reasonably successful in doing so, but these would not take effect until the new financial year,” administrator Anthony Elkerton told SmartCompany at the time.

In another case construction business National Buildplan was forced to close after the majority of its 50 active projects were unprofitable.

3. Don’t try to expand out of debt

The manufacturing arm of Byron Bay Cookies was placed in administration in March last year, just one week after announcing it was planning to expand on its offices in the United Kingdom and the United States, as well as build on its Australian operations.

The much-loved cookie business had a turnover of $13 million, but received a court notice from the Australian Taxation Office requesting it wind up the manufacturing arm of its business due to tax debts.

4. Plan for the future

In July last year a sad story emerged of a $21 million discount book chain which collapsed two weeks after its director suddenly died.

Allbooks4less.com.au was placed into administration in July, leaving the business floundering and under financial pressure without a leader.

The business also experienced tough trading conditions and several of its stores were unprofitable.

The business had also unsuccessfully tried to transition from a pop-up store into permanent store locations once populated by Angus and Robertson bookshops.

5. If you’re affected by AUD fluctuations, know how to adapt

Many exporting businesses were negatively impacted by the high Australian dollar in the past few years and Mornington Winery Group was no exception.

The company battled against the “double whammy” of high exchange rates and a consolidated retail sector, losing its fight in May last year when administrators from Ferrier Hodgson were appointed.

Winemakers’ Federation of Australian chief executive Paul Evans told SmartCompany at the time many wineries had to try and diversify into restaurants or cellar door operations.

“With so much competition domestically, all companies need to find their particular niche and speciality and focus on that,” he says.

“The more businesses can drive sales volumes through formats which are high margin, the better off they are, and cellar doors and restaurants are at the top of that risk.”

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