Why Are 75% More Companies Going Broke In 2009?
According to ASIC, in February 2008, there were 706 Australian companies going into external administration but in
February 2009, there were 1,236 companies going into administration. That’s a whopping increase of 75%. ASIC
defines an insolvent company as one that goes into external administration for the first time. An insolvent company is
one that cannot pay its bills as and when they fall due.
There are also many small businesses not included in the above figures because ASIC only records companies which
go into external administration.
2008 was 11% higher than 2007 for insolvencies. 2009 looks like being higher still as the worst global recession in
70 years sees many businesses closing their doors.
Why do companies go broke?
Ian Renton, business owner and author of Debt Collection Made Easy, gave us his views.
He listed three reasons.
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Lack of customers
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High Expenses
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Lack of cash
Of these three factors, Renton explained, “Lack of cash is the key factor. It is the most challenging. Lack of cash is
something that few people can grasp easily. There are many resources to help with marketing. Similarly, accountants
and business consultants can help businesses minimise their expenses.
When it comes to generating cash and in particular, collecting the money that is rightfully theirs, then business owners
simply lack the skills and resources to do a thorough job. As a result, previously good businesses are just running out
of cash.”
According to Renton, business owners are getting worse at collecting their money. This applies equally to large
companies with a credit department of more than ten employees as well as businesses with less than 15 employees in
total.
This is not surprising since successful credit managers are not rewarded like successful sales managers. For small
businesses, there is no credit manager. The task of collecting money falls on one person and that person is likely to
have other duties also.
Renton believes in regular followup, minimum reliance on the telephone, developing strong customer relationships –
even with slow payers, doing the legal work yourself and spending minimum time and money on collecting your
debts.
If you want more advice or simply want to get a copy of Renton’s book, then you can go to the website at
Ian Renton
Phone: 1-800 226 202 or 02 9631 3366
Email: ian@austcredit.com.au
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