February 21, 2012
The Age
If there was any doubt that small business is hurting from the high dollar, the global economic slowdown and rising interest rates, then take a look at the latest insolvency and start up figures.
Dun & Bradstreet’s survey, released today, shows that a disturbing trend of business failures over the past three years has accelerated in the past year. It shows a 48 per cent increase in the number of small businesses going bankrupt and a dramatic 95 per cent fall in the number of small businesses starting up.
And as parity becomes the new norm for the Australian dollar, times will only get tougher for certain sectors.
It comes at a time when business is grappling with the introduction of new imposts including the carbon tax. It is not a pretty picture and it reinforces the notion of a two-speed economy in which mining and mining services are doing well, but outside of that, other sectors struggle to make ends meet.
To this end, Dun & Bradstreet has used its database to forecast that 128,000 companies across Australia are likely to experience financial difficulties over the next 12 months.
A combination of factors, none of which is being helped by the fact that banks are tightening the screws on who they lend to, as well as charging more as the cost of credit rises. While bad and doubtful debts for the banks are falling, it is not necessarily the case in the small business segment.
If small businesses were looking for relief in the form of rate cuts, they don’t have much reason to be hopeful, at least in the short term.
The minutes of the RBA’s February meeting, which were also released today, noted that there was little reason to cut rates further unless demand “weakened materially”.
Overall, the RBA board seemed content with the current rates setting, particularly as “the likelihood of an extremely bad outcome (in Europe) seemed to have diminished somewhat”.
“With growth expected to be close to trend and inflation consistent with the target, the board considered that this setting was appropriate for the overall macroeconomic outlook,†the minutes said.
The ANZ Bank’s latest results show that business impairments in Australia and New Zealand went from $2.77 billion to $2.92 billion. Businesses across industries are also complaining that what they are being charged over the bill rate has also gone up.
Figures from Dun & Bradstreet show that small business failures grew 57 per cent over the year among companies with less than five employees and 40 per cent over the year among firms with six to 19 employees, with most of the failures coming from the service sector (up 58 per cent), finance (up 58 per cent) and construction (up 66 per cent).
Not surprisingly, start-ups during the December quarter in the manufacturing, service and finance sectors fell by nearly 100 per cent as the Australian dollar made it increasingly difficult to compete.
The findings echo another recent report on business failures which showed that with a steady increase in bankruptcies Australia was now in the same risk category as Italy, Portugal, Spain and the United Kingdom.
It is hard to imagine it being the case, but small businesses trying to refinance loans or which are facing working capital deficits might think differently.
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