Small business bankruptcy jumps

According to Dun and Bradstreet in their latest Business Failures and Start-ups Analysis (full report at bottom of post), the number of small businesses that went bankrupt over the last 12 months has jumped by 48%, although the December quarter of last year did improve slightly from the September quarter.

However, the main trend in the last 3 years has been a 30% growth in business failures, more from Dun & Bradstreet CEO, Christine Christian:

There is an increasing risk that the global economic slowdown will intensify the upward trend in insolvencies.

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.

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.

One of the most startling findings within the report is that during the December quarter, “Start-ups during the December quarter in the manufacturing, service and finance sectors fell by nearly 100 per cent.

That’s a shocking indictment of the viability of future SME (small and medium enterprises) in this country or an eternal optimist might say a great opportunity for others. A curmudgeon might say its just an “adjustment”.

Another key finding within the report was that Australia is now classified alongside the so-called “PIIGS” and the United Kingdom in terms of high insolvency risk, due to the increase in bankruptcies. Maybe it’s more than our mood Mr Parkinson?

And the worst sector in terms of business failure? Retailing – up 11% for the quarter and 115% for the year. No surprises there, nor in the listed retailing stocks as well.

And the best? Mining. Almost nil insolvencies, with failures falling by 20% over the last 3 years. Thank Dog for that century long mining boom then.

Small Business Failures Up 48 Per Cent

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      • It will GB – it will.

        Funny I recently tried to tell David what’s his name the high risk of going into business, but I don’t believe he understood.

        Most enter business through traditional enterprises – cafe’s, coffee shops, retail stores etc, and they are struggling.

        But somewhere out there are people with unique ideas and talents who will do well in this enviroment.

  1. Read an interesting snippet in Dutch media this morning about Rio Tinto introducing fully automated trains putting 100s of train drivers out of work.

    The mining boom could potentially be a blessing for this country but the way it’s managed now it will just hasten along the demise of the economy.

  2. why would you bother starting up a busness in this country? far easier to just go get a union job working for some loss making industry on tax payer funded life support where you get 20% pay rises?

    • bloody hell, still on the 20% pay rises? The terms were 3%/yr over 4 years + variable incentive (i.e. bonus) + catch up for missing inflation linked rises since 2008. That’s about in line with broader inflation-linked expectations.

      • Do you work for a unionised loss making tax payer funded “private enterprise” Karen?

        my point exactly. maybe companies should be setting their wages in line with their ability to stand on their own 2 feet and generate profits like everyone else, small business in particular, has to? nah, lets just have whole selected industries on the dole and get the tax payer to cough up the difference?

        • what like the finance industry?

          you and I both know that process workers in this industry are paid 2-4 times more than what they are worth, to generate outsized profits that manufacturers and other real beneficial industries cannot provide.

        • I don’t, but I recognise the value of fairness in these matters. Enterprise bargaining that results in inflation-like pay rises isn’t rorting or living off the fat of the land.

      • one other thing Karen,

        “+ variable incentive (i.e. bonus”

        how on earth do you justify bonuses being paid when the tax payer is proping up these loss making companies? must be great to live in loss making, bonus paying union world. where do i apply?

        • Ford Australia reported a profit last year for the 2nd year in a row – after receiving $100m in government grants for their $300m in R&D investment. A 1-for-3 deal ain’t bad if it builds capacity for the future.

          Bonuses paid for high performance are a common way to “incentivize” productivity in finance – why can’t it be the same in manufacturing?

        • Might I also add GB that unlike finance, these government incentives are used in research and development of actual, real, moving, productivity enhancing things.

          None of the engineers, assembly plant workers, lawyers, marketing staff etc see any of this money as a bonus.

          It’s easy to slam unions, but from what I’ve seen and demonstrated quite clearly in recent history, it’s not just the unions that cause economic damage.

          PS. Learn to spell Karan. I’m pretty sure he isn’t very happy being called Karen…

  3. Diogenes the CynicMEMBER

    Quelle surprise! Bankruptcies rising…how does this square with the banks reducing their loan loss reserves? Or do banks not lend to any SMEs anymore?

  4. TP – Well analysed. One does not need to have been Einstein to predict this outcome. In fact I predicted it in a MB response at least a year ago. M1 virtually zero for the preceding 2 years, $A 30-40% overvalued and borrowing rates for SME’s at crushing levels. Very deflationary and many distortions. To stay in business or start a small business in Australia one has to be very,very clever. Government policies are directed at big govt,big business,big unions and rapid expansion of regulation and taxation. The conditions are deteriorating and worse is yet to come. Even if the RBA were to loosen right now (and their last stated M1 figure was a significant loosening) then the lag means there would be no consequence for about 12 months.

  5. “Government policies are directed at big govt,big business,big unions and rapid expansion of regulation and taxation.”

    Absolutely correct!

  6. Stagflationary forces (where it counts for SMEs) are preventing deflation, such that nominal figures are masking tightening margins…..which, well, affects everything business….

  7. There is some research out there that shows where jobs have been created and lost in the USA over the last 10 years.

    The important point is that not just some, but ALL the new private sector jobs are being added in the SME sector. Big Business is a net destroyer (directly at any rates) of jobs.

    So a crumbling SME number doesnt look good for our own unemployment outlook.