A recent ASIC report, based on 8,354 reports from external administrators, found small to medium-size insolvencies dominated the statistics with 85 per cent of the collapsed businesses having assets of less than $100,000.
Of those businesses which collapsed, 79 per cent had fewer than 20 employees and 43 per cent had liabilities of $250,000.
| 2014-15 | 2013-14 | 2012-13 | |
|---|---|---|---|
| Profile of companies | |||
| No. of employees affected | 79% of reports concerned companies with less than 20 employees | 81% of reports concerned companies with less than 20 employees | 81% of reports concerned companies with less than 20 employees |
| Industries with most lodgements |
Other (business and personal) services Construction (1,771 reports or 21%) Accommodation and food services (870 reports or 10%) |
Other (business and personal) services (2,482 reports or 26%) Construction (2,153 reports or 23%) Accommodation and Food Services (916 reports or 10%) |
Construction (2,245 reports or 24%) Other (business and personal) services (2,220 reports or 24%) |
| Assets and liabilities |
85% of failed companies had estimated assets of $100,000 or less 41% of failed companies had estimated liabilities of $250,000 or less |
86% of failed companies had estimated assets of $100,000 or less 43% of failed companies had estimated liabilities of $250,000 or less |
85% of failed companies had estimated assets of $100,000 or less 43% of failed companies had estimated liabilities of $250,000 or less |
| Deficiency | 64% of failed companies had an estimated deficiency of $500,000 or less | 65% of failed companies had an estimated deficiency of $500,000 or less | 65% of failed companies had an estimated deficiency of $500,000 or less |
| Top 3 nominated causes of failure |
Inadequate cash flow or high cash use (3,647 or 44% of reports) Poor strategic management of business (3,518 or 42% of reports) Trading losses (2,836 or 34% of reports) |
Inadequate cash flow or high cash use (4,031 or 41% of reports) Poor strategic management of business (3,975 or 37% of reports) Trading losses (3,078 or 33% of reports |
Poor strategic management of business (3,908 or 42% of reports) Inadequate cash flow or high cash use (3,829 or 41% of reports) Trading losses (2,989 or 32% of reports) |
Insolvency practitioner Jamieson Louttit says small businesses are struggling with cash flow as it is taking longer to collect money at the moment.
“Insolvent trading picking up is an indicator of problems and the businesses we are coming across have a longer period of insolvent trading than previous years,” he says.
The ASIC report also found failures in bookkeeping among small businesses which Louttit says is significant.
“Small businesses don’t have the physical time to maintain their books and records,” he says. “There is a lot of regulatory issues for small businesses and it is a very big burden on small business. If businesses are struggling it is less time they have to dedicate to maintaining the books and records.”
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