Insolvency Spike Prompts Christmas Cash Flow Warning: Cash Flow
Insolvency spike prompts Christmas cashflow warning
By Michelle Hammond
The number of corporate insolvencies has surged to its highest level in more than a decade, after almost 3,000 companies entered administration in the September quarter.
According to figures released by the Australian Securities and Investments Commission, 2,961 companies entered external administration in the three months to September 30.
This figure is 11.5% higher than the June quarter and 18.3% higher than this time a year ago. It was also the highest quarterly rise since ASIC’s earliest records from 1998.
The increase was driven by creditor-initiated court liquidations and receivership appointments, representing around 34% and 13% of all liquidations, respectively.
Adrian Brown, ASIC senior executive of insolvency practitioners, says the trend towards creditor-initiated court liquidations confirms creditors’ tougher stance on debt recovery.
Creditors include the Australian Taxation Office and workers’ compensation insurers, Brown said in a statement.
Last month, the ATO said it had more than doubled the number of wind-ups it initiated in the year to July.
According to Dun & Bradstreet, the rise in insolvencies is also consistent with the pressure on retailers and manufacturers, with many falling behind on their payments.
Michael Fingland, managing director of turnaround firm Vantage Performance, says businesses must act now to avoid becoming a victim of the Christmas insolvency spike.
And according to Fingland, 2012 will be no less challenging than 2011, claiming conditions could be even tougher than the aftermath of the global financial crisis.
“Business is facing extremely tough conditions… [However,] the worst thing a business can do is approach this period with a ‘bunker down’ attitude,” Fingland says.
“You need to treat tough times as an opportunity, and be doing something different to stand out from the competition so you can continue to grow and source capital.”
Fingland says while the “herd will panic” by cost-cutting and laying off staff, the companies that are more likely to survive are those that continue to innovate.
“[Businesses need to be] tightly managing their working capital, continuing with research/development and innovation, showcasing their ‘demonstrable’ unique selling proposition and standing out from the crowd,” Fingland says.
“These are the businesses that will win the competition for hard-to-find credit.”
Fingland’s top tips for start-ups include:
· Don’t just compete on price when things get tough.
“The trouble with relying on discounting is you don’t know your competitors’ cash reserves,” Fingland says.
“Don’t blindly go down this path not knowing if you can outlast your competitor.”
· Be unique – have a real point of difference.
“Who would you rather be coming out of the next downturn – the business still discounting its old products or the one introducing new products at a higher margin to the market?”
“Keep the focus on innovation.”
· Focus right now on stress-testing your business.
“It is essential to be undertaking detailed financial modeling and ‘what if’ scenario-testing to gauge how various sudden changes in market conditions will affect your business.”
“It’s all about analysing base case and worst case revenue, margin and working capital scenarios.”
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