Corporate insolvencies have reached a record high with 1,532 companies being declared insolvent during February, according to the latest official figures, with businesses struggling to stay afloat amid weakness in the construction, property, retail and hospitality sectors.
The figure is the highest ever for a February reading, and comes after 2011 was a record year for companies entering insolvency.
While the Reserve Bank continues to say the economy is performing well, business experts cite these figures as saying otherwise.
The ASIC figures show New South Wales led the states with 618 businesses declared insolvent, along with 368 in Victoria, 374 in Queensland, 55 in South Australia and 82 in Western Australia.
That 618 figure in New South Wales is a massive leap from January, when only 259 businesses went into insolvency – and is up from 477 last year.
Insolvency experts say more collapses are coming, as businesses hanging on after Christmas finally start to feel the pain of lower sales and thinner margins.
The RBA’s failure to move on rates doesn’t help, either.
Vantage Performance managing director Michael Fingland told SmartCompany this morning too many businesses don’t know how to make fundamental change during times of trouble.
“They tinker around the edges, they try and aggressively market in some areas, but many just don’t know how to work with their business model.
“They need to be prepared to think quickly and differently.”
With so many businesses collapsing, it’s understandable that SME owners would be nervous about their company’s future.
But there’s plenty they can do. Here are five quick checks a business can make to ensure they’re on the right track and avoiding insolvency.
1. Cut your non-essential products
As businesses grow, they tend to add new products and services over time without getting rid of the old ones. Fingland says, in times of trouble, getting rid of non-performing products can be a great source of income.
“Look around and figure out which products aren’t turning over money quickly enough. Get rid of a lot of non-core or slow-moving products.”
Steve Jobs famously scrapped a number of products when he returned to Apple in the 1990s, saying the company should focus on only a few, core products. Fingland says businesses should consider slimming down.
“Cut non-essential products, and that’ll free up some more cashflow for you.”
2. Speaking of cashflow…
Most small businesses run into trouble with cashflow and it’s a major contributor to start-up insolvencies. Many business owners just don’t know how to manage it properly or they don’t have enough money coming in for it to matter.
Review and update your cashflow budgets regularly – even every day. Set your credit terms, make sure you have payments coming in quickly – get on your customers’ backs and demand they pay in time. At the same time, pay your creditors in a way that won’t disadvantage you.
You may not be able to increase your cash, but you can increase your management, which will often help you out of some tough spots.
3. Reduce your headcount
No one likes firing people. But can you afford everyone you have in your business right now?
If you can afford to lower your headcount, then you should. Combine some responsibilities, or perhaps move some people back to part-time.
There are plenty of people who want more flexible work hours. Ask if any staff would like to voluntarily move back to part-time work or even take a voluntary redundancy – you may find some employees are dying for some more free time and this would be a welcome change of pace.
4. Change sectors if you aren’t getting ahead
Are you exposed to the wrong sectors?
You may have a good business, but if you’re in the wrong area then it’s not going to do you any good. Fingland says one of his clients, a paint business, merely had to move their head office up to Queensland and ride the mining boom in order to get themselves out of a slump.
“You have to think big picture. You need to be prepared to look at the fundamental nature of your business model and how you’re doing things.”
5. Make yourself stand out
You should be doing this anyway. But Fingland says when there are so many businesses struggling to stay afloat and doing everything they can to attract attention, it’s more important to stand out from the pack.
“A lot of businesses are in a sea that look the same, so they really need to think about what changes they should make.”
“That might mean an overhaul of their branding or marketing. It doesn’t need to be something big, either, it could be small changes that mean a quick win.”
This story first appeared on SmartCompany.