Australia’s economy could get a multi-billion dollar boost if troubled businesses were encouraged to seek early intervention, says expert
May 19, 2010
Australia’s economy could get a multi-billion dollar boost if troubled businesses were encouraged to seek early intervention to prevent insolvencies, according to a leading turnaround expert.
Managing director of turnaround and profit improvement specialists Vantage Performance, Michael Fingland, says too many companies wait too long to call in expert help.
According to Vantage Performance, there are almost 14,000 company insolvencies in Australia each year.
Fingland says the main roadblocks to early intervention include the “stubborn pride” of many company directors combined with a regulatory environment which makes some directors too afraid to put their hands up for help.
He says if only 50 percent of businesses fighting cash flow problems had called for help earlier, it could have a $2 billion annual positive flow-on to the Australian economy.
“The estimated financial impact of the average 13,590 insolvency appointments each year over the past 3 years in Australia is more than $13 billion annually.”
SOBERING STATISTICS
A combination of ASIC data and Vantage Performance analysis reveals the average figure of creditors per company is $950,000, while the average insolvency appointments per annum is 13,590.
Furthermore, the average dividend retrieved is 0.05 percent, and the number of creditors impacted per annum is 680,000 (39 percent of all registered companies).
“On top of these statistics, there is the enormous flow-on effect of director bankruptcies, loss of government taxes/income, impact on GDP and economic growth, not to mention marriage breakdowns, suicides and other social impact,” Fingland says.
Statistics from the US, where turnaround management is a more mature industry, point to a 31 percent success rate for turnarounds, which provides a better outcome for employees and creditors than if these companies had entered insolvency.
“Given a 31 percent success rate for turnarounds, if even 50 percent of troubled Australian companies sought early intervention, the annual financial impact on the nation could be reduced by $2 billion and 177,000 fewer companies would be impacted,” Fingland says.
He says early intervention is the key to a successful turnaround and to stopping a business from becoming an insolvency statistic.
“We welcome the current review and mooted reforms by the Federal Government and ASIC, to encourage directors to seek help earlier.”
COMMON REASONS FOR FAILURE
The most common reasons businesses find themselves in trouble include fast growth, poor working capital management, bad management, lack of a clear strategy and loss of a major customer.
“Businesses fail due to a lack of cash not a lack of profit. A large number of directors do not understand the difference between the two,” Fingland adds.
With offices in Brisbane, Sydney and Melbourne, Vantage Performance specialise in improving business performance and executing corporate turnarounds.
The firm works with companies going through major growth or change, helping them to improve profit and performance.
It also advises underperforming companies or those in financial distress, helping improve cash flow, profitability and value of the business.