An iconic politician is auctioning off her silver tea set and other items to pay off a debt she owes to a school. A bus company faces liquidation if it does not repay a multi-million loan to its bank. A small business owner receives a red final notice for an overdue account from a debt collection agency – with grave warnings about loss of directorship under the companies act and sequestration.
A sign of the times. Consumers and businesses are finding it hard to pay back their debts as tough economic times continue without any end in sight.
The statistical release of February 2013, “Statistics of liquidations and insolvencies”, makes for concerning reading. A total of 271 liquidations were recorded in February 2013, showing a year-on-year increase of 35,5%.
During this period, voluntary liquidations increased by 41,6%, while compulsory liquidations decreased by 3,7%. Among the biggest contributors to the liquidations were businesses in the following industries: financing, insurance, real estate and business services. The next largest category was wholesale and retail trade, catering accommodation transport and storage.
Yet looking at insolvencies year on-year up to January 2013, the number decreased by 18,8%. A quick analysis of the trend line for insolvencies from January 2009 to January 2013 shows that insolvencies tend to spike mid-year around May, June and July.
The total number of liquidations of close corporations (which represents mainly small and medium-size businesses) was 1,457 in 2012, 25,4% down from the 1,953 liquidations in 2011. The highest number of liquidations recorded in 2009 stood at 2,244.
Could these liquidations and insolvencies have been avoided? It’s hard to say looking at the cold numbers. But one thing’s for sure and that is small business owners often don’t anticipate a cash crunch in their business. It’s not willful neglect but rather an ever hopeful mindset that hypnotises them into believing that they can ride out the rough.
I wouldn’t suggest that there is a fool-proof way to avoid a cash crisis but especially during bad times start-ups and small business owners need to have the basics of cash forecasting and cash flow management systems in place. An early warning system lets them act quickly before it’s too late.
For a minimal investment in your time with potentially high impact to safeguard your business, type in your email address in the space below. In full confidence and without any obligation, I’ll send you information that will help you strengthen your cash position and avoid late-night calls and barking dogs.
PS Don’t wait until the dogs growl. Type your email address below.