Source: Radio New Zealand
RNZ
Business failures are forecast to continue, even as the economy grinds to recovery.
Centrix said this week that liquidation numbers were up 16 percent year-on-year.
Simplicity chief economist Shamubeel Eaqub has compiled data from the NZ Gazette, which shows that in the year to February, 30 percent of businesses that were wound up were in construction.
Another 15 percent were in accommodation and food services, and 10 percent were rental, hiring and real estate.
Security and safety businesses had the highest proportion of businesses failing with a wind-up rate of nearly seven per 1000 enterprises. That was followed closely by accommodation and food services.
“[Security] is quite a small sector, most of them are security companies, a few road safety businesses… There are a lot of small operators.
“Really the story is in the big ones, the construction and hospitality … that’s where things are really tough.”
Construction businesses were being wound up at a rate of about four per 1000.
Inland Revenue is often cited as a factor in the increasing rate of liquidations. After a quiet couple of years during the pandemic, it has stepped up activity sharply to pull in overdue tax.
Eaqub’s data showed that, at 70 percent of windup applications, Inland Revenue’s share was the same as it had been in 2016.
“I think it’s the [increase] that’s caught people rather than the fact that you’ve broken the law by not paying your taxes and you should be caught. I think some of the writing tends to be a bit sympathetic towards these dodgy businesses not paying their taxes. I have no sympathy for them… you can’t trade while insolvent. If you can’t pay your taxes, you’re insolvent.”
He said in previous downturns it had taken quite a long time for the rate of business closures to slow.
“It takes about 12 months after the economy cycle recovers before the business closures start to come down. That’s because that transition point in the recovery is quite challenging for a lot of businesses. They’re already going into it with relatively low cash reserves, people are desperate.
“They take on a lot more work than they can do in pricing that’s not accurate with costs increasing … This period can catch a lot of people out in the construction industry in particular.
“This is probably the riskiest period for the sector because they can see the recovery and then make decisions, they make rush decisions at this point in time then catch them later on… a period of economic recovery doesn’t mean that it is going to turn around straight away… there’s still this pressure businesses should be really aware of and make sure they’ve got a good close eye on their finances, they’re pricing up jobs correctly, they’ve got the future supply of work.
“This is when people start to move as well – in a lot of smaller businesses, you lose one or two staff, that might be half or three-quarters of your workforce.
“It’s all of those things that happen at the beginning of an economic cycle that can be quite frightening.”
Eaqub said it was notable that some lenders were taking action against businesses.
Bizcap, which describes itself as “New Zealand’s most open-minded lender” has applied to wind up eight businesses this year alone.
Keaton Pronk, a licensed insolvency practitioner at McDonald Vague, said it was unusual that a lender would do that rather than relying on security it would normally hold against its loans.
He said, across January and February there had been 228 winding up applications, of which 157 were from Inland Revenue, 48 were one-off creditors and 23 were creditors with multiple applications.
The Financial Markets Authority also took action against a group of related entities.
A spokesperson for the Financial Services Federation said it was likely that no security was being held against those loans or not enough to cover the debt.
Bizcap did not respond to a request for comment.
Centrix said there were signs of improvement in seven of 19 industry sectors, particularly agriculture, wholesale trade, and information media and telecommunications services.
What can you do?
Frank Witowski, a Business Mentors New Zealand mentor told Nine to Noon this week that people should act quickly if they were in trouble.
Many businesses did not keep a close enough eye on their spending, he said, and waiting too long to ask for help.
“I would say see an accountant and go through your books to see what spending you’ve got. Sometimes people don’t look for help, they try to sort it themselves and it doesn’t always work.”
He said it might be possible for businesses to add other services or products to stand out, or look for ways AI could offer efficiencies.
Cutting prices was unlikely to help, he said. “Price cutting has been going on for so long now. If you don’t have the revenue you need, you’re gradually going down and down, It’s good for buyers to get discounts left, right and centre but for businesses they eventually can’t run it any further.”
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