Sharp rise in small business insolvencies as cashflow woes take a toll

The number of small businesses going bankrupt jumped almost 50 percent over the last 12 months, and poor cashflow management is being blamed for the alarming figures.

According to Dun & Bradstreet’s Business Failures and Start-ups Analysis report for December, the number of bankruptcies jumped 48 percent over the last 12 months and the number of small business start-ups fell by 95 percent.

According to Dun & Bradstreet CEO Christine Christian, these findings correlate with a recent D&B Global Business Failures Report, which found Australian businesses now present a high insolvency risk when compared with the rest of the world.

The report indicated that with its steady bankruptcy rise, Australia’s now classified in the same risk category as a number of countries impacted by the Euro-zone debt crisis, including Italy, Portugal, Spain and the United Kingdom.

Christian said local business failures have trended steadily upwards since 2008, growing more than 30 percent.

“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,” she said.

Christian also said there’s an increasing risk the global economic slowdown will intensify the upward trend in insolvencies.

“In Australia, rising insolvencies are largely being driven by poor sentiment outside the mining sector and a tightening of credit. This will have a knock-on effect on businesses as cashflow becomes more strained,” she said.

Businesses are urged to get their cashflow under control now, which Christian said is a mitigating factor in small business failures, as SMBs feel the effects a more quickly than larger companies with big cash reserves.

“Businesses should take precautionary measures to reduce their level of financial and operating risk. Changing market conditions will no doubt have an impact on all businesses, but it is above all good cash flow management that is the key to running a successful enterprise,” she added.

One thought on “Sharp rise in small business insolvencies as cashflow woes take a toll

  1. Kirsten Clark

    In order for a business to succeed it must understand its financial condition. Businesses must pay attention to their financial statements, continually make changes along the way and know where their cash is going. I’m an advocate of cash flow projections. In fact I’ve produced a website that explains in detail why cash flow projections are such an important tool to the business. You can find this information at http://www.smartbusinesscashflow.com.

    Reply

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