Australian SMEs are hanging in there, according to the latest insolvency data. Figures from the Australian Securities and Investment Commission show 829 companies entered external administration in May, compared with 780 last year.
However, the 6% rise is not as bad as many experts had feared and the figures for May are well below the 1,095 companies that fell into external administration in March.
Michael Fingland, managing director of corporate turnaround firm Vantage Performance, believes there are two main reasons that we have not seen the traditional spike in insolvencies that usually occurs between February and May.
Firstly, the Government's stimulus package has worked, at least in the short-term. "The initial splurge by the Government has certainly had a dampening impact on the economic downturn, although I have described it as throwing a bucket of water at a bonfire," Fingland says.
Secondly, and perhaps more importantly, the Australian Taxation Office is being very helpful to companies that are struggling.
"The ATO appear to be very accommodating in allowing payment plans, often without the usual level of support and documentation that you need, such as cashflow forecasts and the like."
This has been particularly helpful during the last few months, as traditionally many companies have been forced into administration because they've been unable to pay their tax bill from their February Business Activity Statement.
Despite the reasonably positive insolvency data, Fingland remains braced for a sharp rise in the number of companies going to the wall.
"The next quarter is going to be very telling. You are still seeing a lot of clients where they have lost a major company overnight. Access to funding is still a huge issue and debtors are just taking a lot longer to pay."
"I don't see any changes for the rest of the calendar year. It really is just about battening down the hatches and sweating your working capital."
Fingland has a valuable tip for companies who are struggling to survive in this difficult environment - review your product range carefully and cut products that are not working.
"Probably 90% of the companies we work with have too many products. Its usually quite stunning how many products they are making a very small margin on or no margin at all," Fingland says.
"If you convert obsolete stock to cash, you immediately improve your working capital for the next three months because you don't have to re-order. And it makes it a lot easier to manage your working capital if you've got less products, because you can focus on what makes more money."
"You can put that excess cash into marketing your good products and getting even better profits from those."
Fingland says turning obsolete assets into cash is also a good technique for freeing up cash.
He says many companies - particularly those that have downsized in the last 12 months - are now selling their properties and leasing them back.
