The percentage of small business failures is on the rise, as Australian Securities and Investments Commission figures reveal large numbers businesses are under pressure from inadequate cash flow.
Figures released from ASIC reveal 81% of businesses which became insolvent in 2012/2013 were small businesses with less than 20 employees.
The construction sector was the worst affected, with 24% of the insolvent companies in that sector, matched by the “other” category which is mainly composed of business and personal services firms.
Rodgers Reidy director Brent Morgan told SmartCompany when larger firms collapse, many small businesses end up being impacted.“We’re finding firms which deal with small to medium enterprises (SME's) are getting busier, while the big insolvency businesses have quietened down,” he says.
“There have been a number of large corporate insolvencies over the past few years and now it’s filtering down to the SMEs. It happened to the multi-chain retailers and now it’s happening to the smaller businesses.”
Morgan says it’s not a surprise many businesses in the construction sector are feeling the pressure.“In construction we’re seeing that trend and those statistics are no surprise. Anything relating to the sector is struggling. Building, excavation and even transport businesses,” he says. “They’re toppling over and there are tighter margins in all industries involved in the sector.”
In January SmartCompany reported a major Victorian trucking business, Wettenhalls, collapsed putting 500 jobs at risk. In June, the fallout from the Reed Construction collapse in mid-2012 became evident as Advance AirCon, a Sydney-based air conditioning installation and servicing company went under.
The business had encountered cash flow problems when Reed Construction collapsed. Another 500 small businesses were estimated at the time to have been impacted. According to ASIC the primary cause for company failure was poor strategic management of the business, as 42% of businesses reported this as a cause. Forty-one per cent also said inadequate cash flow or high cash use was a driving factor and 32% were trading at a loss. Morgan says the Australian Taxation Office has also been more vigilant in chasing debts recently.
ASIC’s top
three concerns for possible misconduct in the collapsed businesses were trading
while insolvent, obligation to keep financial records and care and diligence of
the directors and officers.
For further information visit the ASIC
website.