Start-ups tipped to surge amid falling job vacancies

A small business expert predicts a spike in the number of new start-ups in 2012, amid falling job vacancies, but doubts have been raised over the banks’ willingness to lend.

According to the Australian Bureau of Statistics, job vacancies fell 3.3% in seasonally-adjusted terms during the three months to November 2011.

The total number of vacancies in November was 181,000 in seasonally-adjusted terms, compared with 187,100 in the previous quarterly survey, the ABS said.

In the private sector, the number of job vacancies was 163,700 in November, down 3.7% from 170,000 in August, with 17,300 vacancies in the public sector.

Peter Strong, executive director of the Council of Small Business of Australia, expects to see a surge in new businesses in 2012, particularly if the number of job vacancies continues to fall.

But in the current economic climate, Strong says it is not a decision that should be entered into lightly.

“So many people want to do their own thing but they should talk to someone about their ideas, cashflow management, etc. – especially for the first 12 months,” he told StartupSmart.

“A lot of people running their own business already are often quite willing to talk about it.”

While Strong encourages people to venture out on their own, he urges them to keep their emotions in check, saying excitement can often get in the way of due diligence.

This year, Strong believes most new businesses will be self-funded as the banks tighten their lending criteria in response to the European debt crisis.

“The reality is that they won’t be getting money from the banks, unless [their business is] incredibly sound, with their house as collateral,” he says.

“Self-funding is about the only way to go, with the way finances are at the moment.”

“A lot of people are starting up on a little amount of capital. You don’t need a lot of money – you can run an eRetail business from your bedroom if you want to.”

Meanwhile, franchising expert Jason Gehrke believes unemployment would need to rise to 7-7.5% before there was a serious spike in the number of people choosing self-employment as the most viable option.

“My initial prediction when the GFC hit was that there would be a land rush towards franchising but I was proven wrong. Unemployment didn’t go up enough,” he says.

“In the early 90s, franchising absolutely boomed during the famous recession we had to have, but unemployment was around 10%. Also, banks still had cash and were lending.”

“With the uncertainty of the European situation, if bank lending is slowing down, the chances of people being able to start a franchise will be more difficult.”

Gehrke says while the overwhelming majority of franchises are bank-funded, the banks will become more cautious about what they fund and how much they fund.

“All of the big banks have some kind of franchise accreditation program so they will look at certain systems and, if they meet the benchmarks, will offer preferential lending arrangements to franchisees of those systems,” Gehrke says.

“[However, there will be] some kind of cap on the amount of money or the number of loans to be written to any given system because even if you apply for a loan and otherwise tick all the boxes, the jar’s empty.”