Accommodation and retail the insolvency hotspots
Business failures over the past year are up 11 per cent in the accommodation and food services sector and 10 per cent in the retail trade, according to the latest ASIC insolvency data.More than 8000 companies went into some form of administration over the 12 months to March, with three-quarters coming from just four industry groups: business and personal services; construction; accommodation and food services; and retail trade.Construction company failures were up 5 per cent and business and personal services 1 per cent.Equifax head of product and ratings services, Brad Walters, says the ASIC figures show that business failures come down to five causes: inadequate cash flow; poor strategic management; trading losses; poor financial control; and undercapitalisation.Walters says conditions have improved in the manufacturing sector, where failures are down 13 per cent over the past year, and mining, where failures are down 6 per cent."Another good news story is the professional and technical services sector, which has had a 5 per cent reduction in faults over the year. This is a large and diverse industry that includes activities such as legal, accounting and veterinary services."According to Equifax's analysis of the data, 38 per cent of administration reports show a total deficiency of more than $500,000.Walter says 85 per cent of the causes of business failure relate to financial or other factors that would be expected to show up in a credit rating report.