Last week, yet another building and construction firm hit the wall, collapsing into liquidation owing $5.7m straddling two different states and territories, leading to a “domino effect” impacting 130 projects and 80 staff members.
This is part of the continuing litany of failure, as data from the Australian Securities & Investments Commission (ASIC) shows that a total of 1,245 companies were declared insolvent in May alone.
This is 44% higher than the same period in 2023 and 122% higher than in May 2022. It is also the highest number of insolvencies in a single month since ASIC started reporting this data in 1999. The surge in insolvencies was driven by the construction sector, which recorded 313 insolvencies in May – a record for this cycle.
This is an object lesson for anyone considering contracting with the building and construction firm of any size; do your own due diligence! It also presents another barrier to the Albanese government’s target of building 1.2 million homes in five years—a level of construction that Australia has never achieved before, despite record activity compared with other countries and over 5% of people working in the sector.
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Today’s post is brought to you by Ribbon Property Consultants.
News.com.au reported that a staggering 2,349 construction firms have collapsed in the past year – with fears more may fall soon.
A “perfect storm” of high interest rates, soaring material costs and an ongoing worker shortage across the Aussie industry have sent tradies into freefall.
Insolvencies in the construction industry have reached an annual record this year, according to fresh data published by the corporate regulator ASIC. The September quarter was the worst for the industry in 2023, where 785 construction businesses traded as insolvent. Just this month four building companies went bust in the first three days of the month.
And amid a chronic shortage of housing fuelled by Australia’s record overseas migration intake, the collapse of builders, contractors and subcontractors will not only have an immediate impact but could crimp future supply of new homes.
We look in more detail at the numbers…
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
A quick on the road update from our Property Insider, who reports on mortgagee in possession sales – emanating from the small business and property investor sectors.
Go to the Walk The World Universe at https://walktheworld.com.au/
I caught up again with Melbourne based Business Consultant Peter Solanikow from Bizne$$ Crew who had another timely and sobering message about small business should manage things in these uncertain times.
SmarterLite’s Chief Technology Officer, Zoran Ovuka, explains the innovation journey the company has been on as it has created a next generation luminosity product. https://smarterlite.com/.
Proof Australian firms have the capacity to be innovative, despite the many barriers in play.
Go to the Walk The World Universe at https://walktheworld.com.au/
Business Broker Eddie Pampalian from Network Infinity joins me to discuss the plight of SME’s based on his experience dealing with a wide range of small and medium businesses.
This release provides information on the prevalence and nature of adverse impacts from COVID-19 experienced by businesses operating in Australia in mid-March 2020.
Approximately half of the Australian businesses surveyed (49%) had experienced an adverse impact as a result of COVID-19 during the mid-March data collection period and 86% of businesses expected to be impacted in future months. The collection period pre-dated the Australian Government’s announcement of Phase 1 Social Distancing Measures.
Adverse impacts were most prevalent in Accommodation & food services with over three quarters of businesses (78%) already reporting impacts and 96% of businesses reporting that they expected impacts in coming months. Businesses in Professional, scientific & technical services (21%), Electricity, gas and water supply (34%) and businesses in Mining (37%) were the least likely to have been adversely impacted by COVID-19 in the collection period.
A reduction in local demand was the most common impact experienced (82%) and was also the most common impact expected in coming months (81%). Of impacted businesses, over a third had experienced staff shortages (36%) and 59% expected to experience staff shortages in coming months.
Tens of thousands of small businesses are facing imminent collapse as revenues tank and they run out of cash. Urgent action is required to avert the disastrous consequences which will follow.
Sensible government intervention like travel bans should flatten the coronavirus curve but we need to also need to flatten the curve of small business insolvencies. Unless they get through the next few weeks, a massive number will not be around when the inevitable recovery takes place.
Banks have a crucial role to play but there is only so much they can do. We should not expect banks to simply offer an open cheque book because that would not be responsible lending. No lender can or should lend to a small business which has no or drastically reduced revenue. So what are the banks saying and more to the point what can they actually DO in this situation?
This is what ANZ’s Shayne Elliot has to say…..
And from NAB’s Ross
McEwan…..
There is a general acceptance that post Royal
Commission the banks are trying harder to be good corporate citizens and they
have all since signed up to the Code of Banking Practice that includes a
section on “When things go wrong” but all the codes and commitments in the
world are of little comfort to small business owners right now when time
is of the essence and if they don’t have:
– A manager they can talk to.
– Time to prepare a loan application and wait for an approval.
– Profits which can be offset by tax breaks.
– Term deposits to access.
– The demand to justify new investment (unless they are a toilet paper
manufacturer).
What they need is liquidity
and if there is one lesson from a career in banking it is that “Cash is king”. This
is as true today as it was after the stock market crash of 1987.
In 1987 we saw the collapse of asset values, predominantly equities, today we
are facing a dramatic economic downturn which is causing a cash flow crisis
that is a particular threat to thinly capitalised small businesses. The only
effective solution is to quickly get cash into their hands. And the only party
which can pay for this is the federal government which means the taxpayer. The
challenge is how to do this in a very short period of time.
In hindsight everything is always much clearer but the truth is we have missed
the boat when it comes to establishing a government agency that could perform
this function. This 2015 newsletter reveals how USA’s Small Business Administration has successfully
funded the small business sector for over 60 years.
Whilst for years the US and
the UK have wholeheartedly and very successfully committed taxpayers funds to
support small businesses, we have just begun dipping our toe in the water
with programs like the $2b Australian Business Securitisation Fund and the
Australian Business Growth Fund which is funded by the banks to the extent of
$540m.
We are now paying the price for this lack of foresight and commitment but that
aside, we must find a way to quickly get cash into the hands of small
businesses.
THE SOLUTION?
The government provides a guarantee to enable approved lenders to grant
registered businesses interest free loans up to $50,000 for a period of 12
months. Parameters that would need to be worked out include:
– Definition of an ”approved” lender eg non-banks, challenger banks,
fintechs etc.
– Amount (should it be more or less than $50,000?)
– Term (should it be more or less than 12 months?)
– Amount of government guarantee so the lender has some risk.
– Repayment terms and arrangements at maturity including potential for
rolling over.
– Size and reputation of borrower (employees/turnover, ATO compliant
etc.)
In broad terms, if there are 600,000 small business owners that qualified and
every one took out a $50,000 loan and every single one defaulted, it would cost
the taxpayer $30 billion.
Given that the coronavirus crisis will end up costing the country many times
more than this sum, the question for our Government is “what price do we put on the small
business sector?”
In mid-February around 1-in-6 Australian businesses (15%) have already been affected by the coronavirus, also known as COVID-19. This new threat to business comes after over a quarter of Australian businesses (28%) said they have been affected by the extensive bushfires over the last few months according to a special Roy Morgan Snap SMS Survey of 1,170 Australian businesses.
Coronavirus hits Education,
Manufacturing and Wholesale industries hard
A little over a week after the Australian
Government stopped all direct commercial flights to China in early February the
coronavirus (COVID-19) is already striking several industries.
Around two-fifths of Manufacturers are already
reporting being affected and closely followed by a third of Education &
training businesses and those in the Wholesale industry.
Other industries to already be feeling the
effects of the coronavirus include Accommodation & Food services which
includes travel and tourism businesses, Community services, Administrative
& Support services and Property & Business services.
Respondents to the survey described in their own words the impact the coronavirus was already having and these responses fell into a few broad categories including the issue of workers, or students, being quarantined and kept away from work/study; the impact on supply lines for the import or export of goods and parts to and from China; the decline in forward bookings from Chinese tourists and cancellations by customers in Asia as well as the general hit to confidence which includes a weaker stock-market as well as lower foot traffic in stores due to a combination of the aforementioned.
Bushfires/Floods strike
Tourism, Retail and Property & Business services industries
A deeper analysis of the industries most
heavily impacted by the bushfires/floods shows that over 40% of businesses in
the Accommodation and Food services sector, which includes travel and tourism,
say they have been affected either ‘A great deal’ or ‘Somewhat’.
Around a third of businesses in the Retail and
Property & Business services industries have been affected while there have
also been disproportionately large impacts on Manufacturing, Transport, Postal
and Warehousing, Public administration & defence, Education & training
and Recreation & personal.
Businesses in the East Coast States of Victoria
(39%), NSW (31%) and Queensland (23%) have been the most heavily affected by
the bushfires/floods. In contrast only 14% of businesses in Tasmania and 11% of
businesses in both South Australia and Western Australia have been affected at
all.
Further details on how the recent bushfires
affected Australian businesses can be found here.
Roy Morgan Chief Executive Officer
Michele Levine says the long bushfire season has finally ended with
drought-breaking rains in recent weeks however the new threat of coronavirus is
a growing threat to the recovery of the Australian economy:
“The new threat of coronavirus (COVID-19) that
has emerged in recent weeks is already hitting the business community in much
of Australia – and in several states including Western Australia, South
Australia and Tasmania – has already had a bigger impact than the bushfires..
“The Australian Government halted all flights
from China in early February and that ban is still in place on a week-to-week
basis as the spread of COVID-19 in China is being monitored.
“Already feeling the effects are Manufacturing
businesses which rely on China for the importation of many parts, Education
& training – China is the largest source of foreign students in this $35+
billion industry and Wholesale which imports many goods manufactured in China
for sale at Australian retail outlets.
“The Tourism industry is also in the firing
line as Chinese tourists (the largest inbound tourism market) are barred from
visiting Australia until further notice. In addition, the all-round impact of
the coronavirus is having an increasing impact on general confidence which in
turn has a negative effect on retail foot traffic. We’ve already seen
restaurants close due to the decline in customers particularly in places
heavily reliant on Chinese-owned businesses such as Chinatown.
“It is hard to predict exactly how the full
impact of the coronavirus will be felt in the Australian economy over the next
few months although it’s safe to say that the negative economic ‘shock’ is set
to grow after outbreaks of the virus have been seen in such diverse places as
South Korea, Iran and Italy over the last few days.”
Businesses affected by the bushfires/floods cf. coronavirus
around Australia by State
Source: Roy Morgan Special
Snap SMS Poll of Australian businesses in February 2020, n=1,170. Base:
Australian businesses.
