SMES AT RISK OF COLLAPSE

DESPITE being most critical to Australia’s economic performance, SMEs have the highest corporate insolvency levels.

This is detailed in Jones Partners’ Insolvency Report 2014, which gauged the correlation between insolvency levels, economic conditions, business environments and major industries at risk for insolvency in the future.

Jones Partners managing principal Michael Jones (pictured) says the report defies the notion that big corporates are more likely to go under, revealing that businesses with less than 20 employees have been contributing most significantly to unemployment in Australia.

Compared to the 6,250 job losses initiated by large public companies with more than 200 employees, SMEs caused more than 74,000 job losses between 2012 and 2013.

Insolvency activity has also been concentrated in construction, retail trade, and business and personal services – “the heartland of SMEs in Australia”.

Corporate insolvencies grew 64 per cent in the decade to 2012 to 13, peaking between 2008 and 2010. 

“The loss of jobs attributed to large corporate failures is actually less than overall employment losses involved in smaller company insolvencies,” says Jones.

“A dynamic SME sector is crucial to economic performance.

“While Australia’s corporate insolvency landscape is dominated by smaller companies, it is also the SME sector that contributes most to employment opportunities, demonstrating a robust appetite for commercial endeavour, risk and entrepreneurship.”

Jones says there are critical lessons to be learnt from Insolvency Report 2014 for businesses about how to avoid getting into these situations.

Namely, having strong strategic management, adequate cash flow and trading at profit.

“With good quality management, companies can still survive and thrive, even in a tough economic climate,” he says.

The report provided analysis of personal and corporate insolvency in Australia by drawing on Treasury, bank, economic and industry data.