Small businesses rarely fail because of poor sales or marketing — they fail because of poor governance
- mickbrawn
- 5 days ago
- 3 min read
The failure of small businesses is mainly due to poor governance. The fact is that few small businesses fail due to poor sales and marketing alone. Poor governance enables a cascade of negative outcomes such as inadequate strategic planning, weak risk management, and a lack of accountability, all of which are crucial for the success of a business.
Small businesses, and the non-profit and charity sectors are particularly prone to failures of governance, risk management and compliance. This is because their early focus from startup is on achieving the vision and delivering on the mission – which often translates into a laser focus on sales and marketing. However, what sustains a new small business, charity or non-profit organisation over the longer term are the solid foundations they build from day one, and the strong scaffolding of governance, risk management and compliance that protect them from inevitable headwinds down the line.
Why Poor Governance, Risk Management and Compliance Put Small Businesses at Risk
Strong governance, practical risk management and consistent compliance aren’t “big business” luxuries, they’re survival tools for small enterprises operating in today’s volatile environment. When these foundations are weak, small businesses become exposed to financial shocks, regulatory breaches, and rapid loss of stakeholder confidence. Recent Australian insolvency trends show just how quickly gaps in oversight can turn into business failure.
ASIC reported 5,520 liquidations and administrations in 2022/23, a 17.2% increase from the previous year, with small and medium enterprises dominating insolvency numbers.
Current Economic Risks Facing Small Businesses
Aggressive interest rate rises, from 0.10% to 4.35% in just 18 months, sharply increasing borrowing costs and reducing consumer spending.
Cost‑of‑living pressures, households cutting back due to rising fuel, food, insurance, tax and mortgage costs, reducing demand for many small business offerings.
Supply chain disruptions, including global transport issues such as those in the Middle East, delaying goods and increasing costs.
Skilled labour shortages, lingering impacts from COVID‑19 immigration restrictions, making it harder to maintain service levels or complete projects.
Shift to online shopping, accelerated during COVID‑19, leaving traditional retailers struggling to adapt fast enough.
Slim margins, small and medium businesses are often the first to feel economic shocks because they operate with limited buffers.
Common Causes of Business Failure
Failure to adapt business models to changing consumer behaviour
High operating costs and poor cost‑control discipline
Excessive debt and covenant breaches
Weak cash‑flow monitoring and forecasting
Inadequate negotiation with suppliers, lenders or the ATO
Poor inventory management and pricing strategies
Lack of contingency planning for downturns
Compliance failures, including trading while insolvent, a serious breach under the Corporations Act (s588G)
Governance, Risk and Compliance Matter More Than Ever
In turbulent times, good governance is not optional. Directors and owners must actively monitor cash flow, negotiate with stakeholders, cut unnecessary costs, manage debt early, and maintain transparent communication with staff and customers.
Poor governance leads to slow decision‑making, missed warning signs, and failure to act early, all of which accelerate insolvency. Weak risk management leaves businesses exposed to predictable shocks. And poor compliance can trigger penalties, legal action, or forced closure.
In short: small businesses fail not only because conditions are tough, but because they are unprepared for tough conditions.
Call me if you would like to build strong governance foundations for your business
Michael Brawn — Michael Brawn Consulting (MBC)
0414 987 129
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