The number of small business collapses soared through 2011 and credit reporting agency Dun & Bradstreet says this year could be another tough one as poor sentiment outside of the mining sector and tightened credit conditions take their toll.
D&B’s analysis of business start-ups and failures – based on their own numbers and those of the corporate regulator – found that the number of small businesses going under lifted by 48% in 2011, although conditions picked up in the December quarter.
This compares with a 42% increase in insolvencies nationwide across the year, D&B says.
For the three months to December 31, 2011, there were 2,736 failures, down from 3,049 the previous quarter, D&B said. This compares with 1,925 business failures in the December 2010 quarter, it says.
The report follows figures from the Australian Securities and Investments Commission showing that 2011 had been the worst year ever for insolvency appointments, with corporate insolvencies up 9.2% to 10,481.
D&B says smaller firms and those in service, finance, construction, manufacturing and retail dominated the collapse list of 2011.
“There’s no surprise there,” says Peter Strong, executive director of the Council of Small Business of Australia.
Strong adds the news is not only bad for the economy, but sad for the individuals involved.
Collapse among firms with fewer five employees grew by 57% through the year, D&B says, whereas there was a 40% increase for firms with between six and 19 employees.
And collapse numbers rose by 58% in service and construction, 66% in construction and 28% in manufacturing, D&B said.
Retail also had a shocking year, with collapse numbers up 11% for the December quarter and 115% for the year. It was the only sector to post a rise in collapse numbers through the December quarter.
Start-up numbers have also gone through the floor. D&B says start-up numbers for firms with fewer than five employees slumped 95% through 2011, and there was a near-100% fall in start-up numbers for the manufacturing, service and finance sectors in the December quarter.
D&B chief executive Christine Christian says there’s an “increasing risk that the global economic slowdown will intensify the upward trend in insolvencies.”
“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,” Christian said.
“Outside the mining sector, sentiment is generally still poor and the strong Australian dollar is straining profits. This could lead to an increase in business failures in 2012.”
Christian says business failures have risen by more than 30% over the past three years.
According to ASIC, corporate insolvencies rose by 9.2% over 2011 to 10,481. That rise compares to an increase of 1.7% during 2010, 3.6% in 2009 and 21.2% in 2008.