Financial pressure intensifying on small business

Financial pressure on small business is intensifying, with cash flow problems, late payment terms and declining market conditions threatening viability

October 5, 2011

Financial pressure on small business is intensifying, according to a new survey, with a combination of cash flow problems, late payment terms and declining market conditions conspiring to threaten business viability.

The survey from global debtor finance specialist Bibby Financial Services reveals concern among small businesses over their profits and survival.

Bibby Managing Director Greg Charlwood says conditions are deteriorating to the point small businesses are now worse off than one year ago.

"Our Bibby barometer survey of small business proprietors showed they are under higher stress and have a more uncertain cash flow than a year ago," he says.

"They face longer delays being paid and are coping with more difficult market conditions, staffing issues and access to finance."

According to the survey, one in five small businesses will become insolvent if they lose their two largest customers or if their two largest suppliers put them on cash-on-delivery status.

A further 43 percent will be forced to downsize if they suffered either of these two events. The survey shows only 27 percent were confident they could absorb the decline in cash flow if they lost their largest suppliers or put on cash-on-delivery status.

The Bibby survey found 46 percent of small businesses had to access personal savings to alleviate cash flow problems, while 38 percent took out an overdraft.

The majority of small businesses (62 percent) feel their bank requires too much security for their borrowings or overdrafts, while 22 percent claim bank requirements are excessive.

Bibby says funding will continue to be an issue for small business proprietors over the next year, with 21 percent intending to seek new funding for growth, and 19 percent looking for funding to provide working capital.

The survey says 34 percent of respondents will be looking to pay down an existing loan, while 20 percent intend to refinance existing debt.

Bibby is also pointing to recent insolvency statistics from the Australian Securities and Investments Commission (ASIC) which show companies entering into external administration across Australia reached the highest level in the June 2011 quarter since December 2008.

The ASIC figures show 2656 companies in Australia entered external administration in the June 2011 quarter compared to 2275 in the March 2011 quarter.

NSW has consistently had the highest number of companies going into external administration over the past 10 years, followed by Victoria and Queensland.

"A major concern is the high sensitivity small businesses have to bad debts. Almost a quarter of the business owners we surveyed had experienced a bad debt in the past 12 months," Charlwood says.

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