Business failures rose 25 percent for the three months to June to reach their highest rate in 12 months, according to the latest Dun and Bradstreet (D&B) figures.
According to D&B’s Business Failures and Start-ups Analysis report, small businesses, particularly those in the retail, finance and service sectors, have the highest reported rate of failure, and are increasingly forced to shut their doors during times of reduced cash flow.
According to Dun & Bradstreet CEO Christine Christian “cashflow is the mitigating factor here, particularly for small businesses who feel the effects a lot faster than larger companies with cash reserves to match”.
The construction industry fared the worst, with failures in construction rising to 53 percent, followed by retail at 40 percent.
According to the report, almost 3000 firms failed in the June quarter 2011. If rates continue at this pace, this number will easily exceed the 2010 figure of over 10,000.
During the same period over 41,000 new businesses entered the market, a rise of 16 percent over the March quarter. However, most of these new ventures have been online business. The number of new retail and service businesses dropped by 91 percent and 85 percent respectively.
“An almost non-existent start-up rate in key consumer-driven industries shows a lack of confidence in the current market and often a lack of credit access. The drop in the number of new smaller businesses indicates credit providers are failing to identify key credit markets,” Christian said.
D&B’s analysis of the quarter also revealed “a 20 percent jump in delinquent payments, and Dynamic Risk Score data showed us a significant number of firms with downgraded risk scores – all occurring within this same three month period.”
NSW had the highest failure rate in the country with firm failures reaching over 1200. Victoria came second with 615, followed by Queensland with 462. The best performing areas were the Northern Territory and Tasmania, both recording double digit insolvencies, only a slight increase from the March quarter.
The data suggests further economic challenges for businesses in 2012.
