As an active and experienced investor in small businesses in Australia, I predict the same three key challenges in 2018. So what is keeping Australian SME business owners up at night?
1) Limited access to capital (where’s the cash?)
Growing a business requires cash. Access to the capital needed to expand into new markets, make an acquisition or fund rapid growth can be difficult for SME business owners. Banks have tight lending criteria and many are unwilling to lend to SMEs. Those that do often seek personal guarantees from shareholders and security over their private assets.
The IPO market is also difficult for SME business owners to access. Lack of scale, inadequate reporting systems and the overwhelming cost and burden of regulatory requirements are all impediments for SMEs trying to access this source of capital.
2) Access to expertise (where’s the smarts?)
Today’s fast-paced, high-tech, business world is in a state of transformational change. Keeping on top of new technologies, industry disruptions and innovation whilst maintaining a focus on running the day-to-day profits and cash flow is hard even for larger businesses. Smart SME owners know they need expert help. They are increasingly looking for external resources to help them achieve accelerated and sustainable growth.
3) Succession (where’s the future?)
I recently read a scary statistic: “c.70% of SME owners in Australia are expected to exit their business over the next 10 years but over 90% don’t have a succession plan in place”. Most SME business owners have not even started to think about what the plan is when they retire. There is a lot of complexity here. Simply passing the business down to family or other managers may not be the best way. Planning ahead early is vital to ensuring the best financial and legacy outcome for all parties.
How private equity can help
Getting the right private equity investor on board can provide a solution to all these challenges. Private equity can provide the finance, strategic support and access to networks of experts to accelerate business growth. In addition, private equity has access to high quality management teams to provide succession solutions.