Business cracks widen as corporate insolvencies rise

by 22 Feb 2012

New statistics have revealed some 58% of small businesses and start-ups failed in 2011 and the gloomy outlook is affecting large firms as well – the rate of corporate insolvencies rose by more than 48% last year.

A joint report released today by the NSW Business Chamber and Commonwealth Bank has shown that positive business expectations have slumped to the lowest level since the GFC. “Businesses we’ve surveyed have always maintained an optimistic outlook for the next quarter but that has clearly taken a turn for the worse in this latest survey and that should be of great concern,” Stephen Cartwright, CEO of NSW Business Chamber said.

As a case in point, the NSW economy is particularly feeling the effects of subdued consumer confidence, the uncertain global economic outlook and the high Australian dollar. “The nature of NSW’s diversified economy such as retail, manufacturing, financial services, tourism and construction means that these challenges are all impacting on the overhaul strength of the State’s economy.”

Cartwright warned that now is a tough time to be in business and no one should underestimate the need for companies to buckle down and look at opportunities to innovate and reduce costs until the economy picks up. But does that mean jobs should be on the chopping block?

According to the survey findings the low level of business confidence has not had a telling effect on employment intentions. The chamber found 73% of surveyed companies expect to leave staffing unchanged in the next quarter, while 14% expected to employ more staff and 13% expected to lay off staff. See related report: Temp labour gives competitive edge

A further independent report*by business advisory group Dun & Bradstreet revealed some concerning statistics:

  • Company insolvencies jumped 59% in NSW last year, above the national rise of 48%

  • 24% of firms expect wages growth to be the primary influence on operations

  • The number of new small businesses started in NSW dropped 75% last year

  • Nearly 40% of businesses said their profitability had fallen in the December quarter and 37% said they anticipated a fall in this quarter

Christine Christian, Dun & Bradstreet CEO, said that while historical lead indicators of financial stability such as cash flow have improved, there is no doubt that businesses are increasingly factoring in the impact of economic variables such as interest rate reductions.

Christian added that while there have been minor improvements in stability, this improvement has not translated into plans for long-term employment growth, with businesses recording a three point drop in employment expectations for the June quarter.

“This would appear to indicate that businesses are still taking a cautious, wait-and-see approach on trading conditions before looking to expand their operations or their workforce,” Christian said.

D&B also expect the rate of insolvencies to rise further if global economic problems are not addressed. “Despite recent interest 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.”

*D&B Business Failures and Start-ups Analysis December 2011


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