Insolvencies hit record level as business expectations flounder

Small business insolvencies have reached an unwelcome new high, with business expectations continuing to remain below average, according to new figures.

The latest edition of the ACCI Businesses Expectations Survey, which covered the three months to March 2012, is based on a survey of 2,822 respondents.

According to the survey, almost all actual and expectation indicators recorded small improvements in the March quarter, but remain well below their five-year averages.

Businesses are becoming less negative about prospects for their own trading conditions, with the index on general business conditions improving for the first time in two years.

The index for expected economic performance also increased in the quarter, signalling business confidence has improved from its recent low recorded in the second half of 2011.

However, comparisons by firm size show small businesses continue to experience the weakest performance relative to medium- and large-sized firms.

All firms experienced negative general business conditions in the March quarter, but only small businesses expect their trading conditions to remain negative in June.

“Many businesses, especially small business, continue to experience difficult trading conditions,” ACCI director of economics and industry policy Greg Evans said in a statement.

“[This is] a result of greater competition in trade-exposed areas but also poor confidence levels across many sectors.”

“The ongoing weakness in current trading conditions and retreating inflationary pressure [should] justify the Reserve Bank delivering a rate cut… tomorrow and in the period ahead.”

“Banks in turn should announce a commensurate adjustment in lending rates for households and small businesses in a timely fashion.”

“Delays will only serve to frustrate the effectiveness of monetary policy in restoring flagging business and consumer confidence.”

The news comes on the back of new statistics from the Australian Securities and Investments Commission, which show 1,123 businesses were placed into administration in February.

This is more than double the number recorded in January (518), while the next highest figure on record is for March 2009 when 1,095 businesses went into administration.

Behind the latest surge is a sharp rise in the number of businesses being wound up through the courts, which reached a record of 449 in February, compared with just 79 in January.

It’s understood the rise in court wind-ups is being driven by the Australian Taxation Office seeking to recoup unpaid tax debts.

ASIC’s data shows businesses with fewer than five fulltime-equivalent employees accounted for more than half of those placed into external administration in the year to June 30, 2011.

The construction sector accounted for almost 24% of the 4,963 small businesses wound up over this period, with poor strategic management nominated as the biggest cause of failure.

This was followed by inadequate cashflow, trading losses, poor financial control and poor economic conditions.