The number of new start-ups fell by a whopping 95% over the last 12 months, according to the latest Dun & Bradstreet report, as record numbers of small businesses continue to go bankrupt.
According to the D&B Business Failures and Start-ups Analysis, for the December quarter of 2011, small business start-ups among firms with less than five employees fell 95% in the year.
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During the December quarter, small firms (1-19 staff) recorded the biggest slump in new businesses, with start-ups falling an average of 81%, while larger firms remained relatively flat.
“Start-ups fell across sectors, particularly among construction, finance, manufacturing and services firms, where a near 100% drop in new business was recorded year on year,” Dun & Bradstreet said in its report.
“During the December quarter, finance and construction firms recorded an equally severe drop in start-ups.”
Meanwhile, small business failures grew 57% over the year among firms with less than five employees, and 40% over the year among firms with six to 19 employees.
While most sectors saw some improvement during the fourth quarter, failures in the retail sector rose 11% for the quarter and were up 11% for the year.
And since the global financial crisis in 2008, failures in the services sector have risen by 77%, while failures in the manufacturing industry have increased by 57%.
In contrast, the mining industry recorded almost no insolvency activity during the December quarter. Over the last three years, failures in the mining industry have fallen by 20%.
“Outside the mining sector, sentiment is generally still poor and the strong Australian dollar is straining profits,” Dun & Bradstreet chief executive Christine Christian says.
“This could lead to an increase in business failures in 2012.”
According to Dun & Bradstreet, more than 128,000 firms are likely to experience financial distress over the coming 12 months, which could explain the huge drop-off in start-up numbers.
Christian says business failures have trended steadily upwards since 2008, growing more than 30% in the last three years.
“There is 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,” Christian says.
“This… can often be enough to deter businesses from entering the market, irrespective of actual conditions.”
For existing businesses, Christian identifies cashflow as the mitigating factor, particularly for small businesses, which are more likely to the effects much faster than their larger counterparts.
“Businesses should take precautionary measures to reduce their level of financial and operating risk,” she says.
“Changing market conditions will no doubt have an impact on all businesses, but it is above all good cashflow management that is the key to running a successful enterprise.”