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Small business failures up 48 per cent

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Small business failures up 48 per cent

By , February 21, 2012

National insolvencies jump 40 per cent in the last 12 months

The number of small businesses going bankrupt jumped by 48 per cent over the last 12 months, while small business start-ups fell by 95 per cent over the same period.

Analysis by Dun & Bradstreet of business start-ups and failures for the December quarter 2011 found that across the economy, business failures were down 10 per cent on the September quarter 2011, but up more than 40 per cent for the year.

This coincides with Dun & Bradstreet’s downgrades during the December quarter of more than 128,000 firms that are likely to experience financial distress over the coming twelve months.

According to Dun & Bradstreet CEO, Christine Christian, Australian business failures have trended steadily upwards since 2008, growing over 30 per cent in the last three years.

“There is an increasing risk that the global economic slowdown will intensify the upward trend in insolvencies,” Ms Christian said.

“Despite recent rate cuts, there is a palpable lack of confidence in the current operating environment. This is obviously one of the side effects of long standing global uncertainty and can often be enough to deter businesses from entering the market, irrespective of actual conditions.”

Key findings of the D&B Business Failures and Start-ups Analysis for the December quarter 2011:

Nationwide, insolvencies rose 42 per cent year-on-year while the number of new businesses fell 11 per cent over the same period;
Small business failures grew 57 per cent over the year among firms with less than five employees and 40 per cent over the year among firms with six to 19 employees;
Small business start-ups among firms with less than five employees fell 95 per cent in the year;
Failures were most pronounced within the service (up 58%), finance (up 58%) and construction (up 66%) sectors; and
Start-ups during the December quarter in the manufacturing, service and finance sectors fell by nearly 100 per cent.

“Outside the mining sector, sentiment is generally still poor and the strong Australian dollar is straining profits. This could lead to an increase in business failures in 2012.”

Business Failures by Firm Size Q4 2010 – Q4 2011
objectifyMedia
While most sectors saw some improvement during the fourth quarter, failures in the retail sector rose 11 per cent for the quarter and were up 115 per cent for the year. This corresponds with similar jumps in the traditional manufacturing states of New South Wales and Victoria where insolvencies increased 59 per cent and 35 per cent respectively for the period.

Since the Global Financial Crisis in 2008, failures in the services sector have risen by 77 per cent, while failures in the manufacturing industry have increased by 57 percent.

In contrast, not surprisingly, the mining industry recorded almost no insolvency activity during the December quarter. Over the last three years failures in the mining industry have fallen by 20 per cent.

Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.