Financial management

21 business icebergs that could sink your business

- June 27, 2015 3 MIN READ

If you’ve never conducted a risk management assessment on your business you might find yourself asleep at the helm one day with a (proverbial) iceberg fast approaching.

If you’re too young to remember the story of the iceberg that sank the Titanic, let me give you the ‘Executive Summary’ of what went wrong (courtesy of

“RMS Titanic was a British passenger liner that sank in the North Atlantic Ocean in the early morning of 15th April 1912, after colliding with an iceberg, during her maiden voyage from Southampton, UK to New York City, US.  The sinking resulted in the loss of more than 1,500 passengers and crew, making it one of the deadliest commercial peacetime maritime disasters in modern history.

Two enquiries reached broadly similar conclusions, the regulations on the number of lifeboats that ships had to carry were out of date and inadequate, Captain Smith had failed to take proper heed of ice warnings, the lifeboats had not been properly filled or crewed, and the collision was the direct result of steaming into a dangerous area at too high a speed.”

This is a useful story to remember and one that all of us in business can probably relate to.  The question is though, who is looking out for the small business risks in your business?

Here are some examples of icebergs we’ve encountered in our time with our clients:

  1. Superannuation calculated on the wrong staff pay items, resulting in overpayment.
  2. Ignorance of Work Health and Safety compliance laws, risking potential fines of hundreds of thousands of dollars and jail term for directors.
  3. Growth plans with no consideration of the cash required to fund growth.
  4. GST claimed on expenses with no GST included. If this goes on for a long time it can result in large amounts due, plus fines, plus interest and risk putting your business being on a black list for future audits.
  5. Similarly GST not claimed on items containing GST – risking potential input credits not claimed, adding up to large amounts, causing unnecessary and unexplained cash flow problems.
  6. PAYG and superannuation not paid, which resulted in a personal liability for the directors of the business (even after liquidation).
  7. Plans to purchase a competitor’s business without consideration of the extra working capital required to fund the extra sales, risking potential cash flow problems and insolvency.
  8. Incorrect rates paid to staff resulting in retrospective recompense and wasted time dealing with Industrial Relations claims.
  9. Long service leave liabilities not accounted for and expected, resulting in potential large payments, unless you have a particularly good relationship with staff to enable negotiation.
  10. Lease on premises not renewed, resulting in landlord giving notice to vacate, causing immediate and unexpected closure of business.
  11. Payments to suppliers with no ABN or lapsed ABNs, resulting in liability for business to pay PAYG tax on their behalf.
  12. Inadequate business insurance resulting in unnecessary hardship after fire.
  13. Unresolved contractual issues resulting in unnecessary money and time spent in litigation.
  14. Lack of data backups, resulting in unnecessarily long time to recover after technology breakdown.
  15. Fraud by staff resulting in financial loss.
  16. Issues not allowed for in supply chain, resulting in lack of supply and reduction in revenue.
  17. Ignorance of environmental issues e.g. ‘Digital Disruption’ (impact of internet delivery of products/services by cheaper competitors) causing reduced sales. Also impact of sites like Trip Advisor on hospitality industry.  Adverse ratings are ignored at the peril of businesses in this industry.
  18. Lack of credit checks of major customers resulting in bad debt, which severely impacted business’s ability to continue.
  19. Poorly implemented systems, causing interruption to the business’s ability to deliver to customers and reduced revenues.
  20. Goods not registered with PPSR, causing inability to recover them in the event of customer liquidation.
  21. Errors in accounting, resulting in underpayment of tax and penalties and interest on underpayment.

These are just some of the issues uncovered, some before the disaster occurred and some unfortunately after the event (they occurred before we got there!).  It’s tempting to think that lots of sales will make up for any little issues that occur.  Unfortunately these issues can ‘rear their ugly heads’ when times aren’t so good and the funds aren’t available to cover them.  It’s called ‘Murphy’s Law’!

The old saying ‘prevention is better than cure’ is appropriate here.  An iceberg can cause more than ‘just’ financial hardship, it can also cause severe stress for business owners and affect staff morale.  The issue with risk management can be ‘we don’t know what we don’t know’ and it can be a very worthwhile exercise to have someone with experience to do a ‘risk management’ review of your business.

Has your business ever encountered an iceberg you should have seen coming?