Big Money: There’s no excuse for failing to see financial trouble looming

Small business owners must wear many hats: one day an accountant; another, a receptionist; a third, a human resource professional.

All this running around means small businesses are often time-poor. But it can also leave them vulnerable to gaps in their knowledge of key business functions.

Finance is one of the biggest. And there are costs to this blind spot.

According to recent data collected by the Australian Securities and Investments Commission, from 2009 to 2012 there was a 27% increase in the number of small businesses becoming insolvent. One of the biggest reasons for this, nominated by 4048 liquidators dealing with insolvent firms in 2011-2012, was inadequate cashflow, or a high use of cashflow. Another 3022 firms were pegged for having failed due to poor financial controls, while 3326 had too many trading losses.

The deputy dean of the Macquarie Graduate School of Management, Guy Ford, says business owners and managers understandably get caught up running their business, and so fail to read the early warning signs of financial trouble.

“In our regular interaction with businesses, it is evident that many owners and managers fail to see major trends affecting their businesses, and importantly, miss early warning signs in terms of financial results,” he said.

“They focus on profits, and miss other vital factors such as the quality of their assets and the effective management of their working capital.”

For business schools, this poses a challenge. Corporate executives are most likely to avail themselves of specialised business training, but because of all the support structures around them, they’re the ones least likely to need them. Entrepreneurs rarely have the time or the resources.

But Ford is offering a solution.

The Macquarie Graduate School of Management has partnered with Open Universities Australia to launch a free, entirely online course on how business owners can recognise the early warning signs of financial problems. ‘Diagnosing the Financial Health of a Business’ runs for four weeks and contains 40 short videos and multiple choice assignments. The first module launched on Monday, but it’s not too late to enrol.

It’s one of several courses now open to entrepreneurs, offering specialist knowledge from world-leading experts for free with a great deal of flexibility and convenience. On Coursera, where I’ve spent a lot of time lurking of late, there are excellent courses in accounting, economics, game theory and start-up programming, to name a few relevant to small businesses.

If you’ve got a blind spot you should fix, it’s never been easier to do so.