23 per cent jump in new businesses during Q2 2014
In signs that confidence about the trading environment may be strengthening, the number of business start-ups in Australia has jumped by 23 per cent compared the previous quarter and by eight per cent from a year earlier
On the back of record low borrowing costs and expectations of stronger growth, Dun & Bradstreet’s review of new and failed businesses has found that 62,160 enterprises commenced operations during the second quarter of this year, up from 50,539 in the three months previous and 57,504 in 2013.
With more businesses being created, there has also been an increase in failed businesses; which are defined by D&B as those that seek legal relief from creditors or cease operations without paying their creditors in full. Year-on-year business failures have increased by 9.6 per cent from 9,056 to 9,927, although the number has declined by 11 per cent from the previous quarter.
The pickup in new businesses during Q2 2014 reflects a current mood of positivity about the trading environment, with D&B also finding that 64 per cent of firms are more optimistic about growth this year compared to 2013.
“Confidence is critical for entrepreneurship and these numbers on business start-ups indicate there is a building mood of positivity about opportunities in the economy,” said Gareth Jones, CEO of Dun & Bradstreet–Australia and New Zealand.
“Significantly, despite more businesses entering the market during the last quarter, D&B has measured a quarterly decline in the number of failures – although there has been an increase on the 2013 level.
“Overall, considering this year’s positive ratio of business start-ups to business failures, these findings bode well for economic growth across the remainder of 2014,” Mr Jones added.
While the greatest number of new businesses commenced in New South Wales, the Australian Capital Territory and Victoria experienced the largest percentage increases from last year. In the ACT during Q2 2014 there were 1,097 new businesses; a 23 per cent jump, while in Victoria an additional 19,247 enterprises entered the market; a 15 per cent increase compared to 2013.
At the other end of the scale, in South Australia, where employment and economic growth has been weaker than most other states, the second quarter of the year has seen 8.5 per cent fewer businesses created than a year earlier.
The healthy lift in new businesses through the first half of 2014 has been matched by fewer failures in the majority of states. Despite its weak economic output, South Australia has led the way with a 19 per cent quarter-on-quarter fall in insolvencies, while the Northern Territory (18 per cent), Western Australia and Victoria (16 per cent each) have also seen significantly fewer failures since the first three months of the year.
Despite the positive quarterly findings, year-on-year analysis shows there has been a higher number of failures. In Tasmania, 90 businesses ceased operations during Q2 2014, up 55 per cent from the same time last year, while in the ACT there was a 24 per cent rise from 123 to 152. By number, more businesses failed in New South Wales and Victoria than anywhere else, with 3,386 (up from 2,961) and 2,259 (up from 1,982) respectively.
Among the industries analysed by D&B, more than half of the business failures were found to have occurred within two industries. During the second quarter of the year, the services industry represented 29 per cent, and the finance, insurance and real estate sector 26 per cent, of total failures.
The biggest percentage increase in business failures occurred in the transportation, communications and utilities sector, with a 70 per cent jump compared to last year. In the manufacturing sector there was also a 67 per cent increase in failures year-to-year.
“The dynamic position of the Australian economy shows up very clearly in the business data for the June quarter,” said to Stephen Koukoulas, Economic Adviser to Dun & Bradstreet.
“Most encouraging is a strong lift in the number of new business start-ups and the finding that 64 per cent of business is more optimistic about growth in 2014 than was the case in 2013.”
“The number of business failures also rose in the June quarter but was significantly less than the increase in new business start-ups, which suggests a net improvement in economic conditions over the past year. “At face value, the increase in business failures is concerning, but in a vibrant economy where risk taking is to be encouraged, there will always be some businesses that simply don’t make it,” Mr Koukoulas added.
“The critical issue is that the number of new business start-ups outpaces business failures – if this trend can be sustained for the year ahead, the rate of economic growth should remain firm.”
Source: D&B Australia