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ASIC data has revealed that the number of companies entering into external administration continues to escalate. In fact, in the three years from 2009 to 2012, Australian insolvencies rose from 7,903 to 10,074 – an increase of 27%.
The data confirms that small businesses are most at risk; of those affected, 78% of companies had less than 20 employees and 85% of affected companies had estimated assets of $100,000 or less.
The top four factors leading to insolvency, as nominated by administrators, are:
Australian Insolvencies 2011 -2012
|
Poor strategic management of business |
4,449 firms |
|
Inadequate cash flow or high cash flow use |
4,048 firms |
|
Trading losses |
3,326 firms |
|
Poor financial control including lack of records |
3,022 firms |
Macquarie Graduate School of Management’s (MGSM) deputy dean and professor of finance, Guy Ford, says it’s ‘telling’ that poor strategic management of businesses rates the highest.
“Inevitably, this manifests in the financial difficulties highlighted in the next three categories.”
Professor Ford says many owners and managers understandably get caught up in the day-to-day running of a business and, in so doing, fail to read the early warning signs that suggest their business may not be in a good shape.
“In our regular interaction with businesses, it is evident that many owners and managers fail to see major trends affecting their businesses, and importantly, miss early warning signs in terms of financial results. They focus on profits, and miss other vital factors such as the quality of their assets and the effective management of their working capital.”
“As a management school, every day we help executives and senior managers tackle these issues. However, smaller businesses rarely have the time or resources to immerse themselves in this degree of education. I believe we can do something about this - it is our responsibility to widen access to these critical skills.”
In order to address this, MGSM has partnered with Open Universities Australia (OUA) to launch a free online course offering that focuses specifically on early warning signs of financial problems, with an emphasis on approaches that are forward-looking and integrative.
The program, which runs through the 'Open2Study' platform, is called Diagnosing the Financial Health of a Business and runs continually every four weeks. It contains 40 short videos and multiple choice assessments.
“This is not your normal finance course. We provide a practical management perspective to these issues. The production on the part of OUA is impressive and we are thrilled that we can provide this free to the wider business community.”
To view the unit online, click here
