Lenders beware: SMEs are higher risk
The rate of business insolvency, relative to the total number of companies in Australia, has more than doubled over the past 15 years, reflecting an increase in the risks involved in running a business.
A study of the insolvency market by economist Chris Nadarajah, commissioned by chartered accountants Jones Partners, found there was a business insolvency rate of about 1.5 per cent of total businesses in the 1999/2000 financial year. By 2012/13 the proportion had increased to 3.4 per cent.
Presenting the results of the study at a seminar in Sydney yesterday, Nadarajah said companies employing fewer than 20 people accounted for 80 per cent of business insolvencies.
Nadarajah said the figures indicated that the SME sector had become more risky over the past 15 years.
"The barriers to entering business are lower and more people are having a crack. This reflects the fact that we have more contractors and sole traders in the workforce," he said.
CommSec economist Craig James, who was on a panel with Nadarajah discussing the report, said another factor was that Australia had not had a recession for 22 years and a lot of people starting businesses in recent years had no experience of the downside of business and did not take adequate protection against risk.
Another panelist, IBISWorld chairman Phil Ruthven, said the nature of small business had changed. "There are two types of SMEs – the old inherited businesses and new age SMEs," he said.
The characteristics of "new age" SMEs include new types of intellectual property, new technology and involvement in new industry sectors – all of which involve greater risk exposure.
Nadarajah said the causes of business failure were the same as ever: poor management; inadequate cash flow or high cash use; and trading losses.
Article By: John Kavanagh
source - Australian Financial Review
source - Daily Telegraph
source - The Australian
Small to medium enterprise (SME) insolvencies accounted for 12 times as many job losses as corporate failures during 2012/2013, according to a new report.
Insolvency and business recovery firm Jones Partners released the inaugural 2014 Insolvency Report this week.
The report found that 81 per cent of companies that failed during 2012/2013 had fewer than 20 employees, resulting in more than 74,000 job losses.
source - InvestorDaily
Tens of thousands of people are being put out of work in Australia each year by a string of small failures, the collapse of businesses with fewer than 20 employees, according to a study of insolvency which analyses Treasury, bank, economic and industry data.
"Most of these insolvencies receive little or no broader public or media attention, standing in stark contrast to the enormous exposure given to large corporate failures," says the study, Insolvency Report 2014, commissioned by insolvency and business recovery experts Jones Partners.
source - Business Insider Australia
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