How The Silent Collapse Of Small Businesses Is Putting More People Out of Work Than Failing Big Companies

Getty/John Moore

Tens of thousands of people are being put out of work in Australia each year by a string of small failures, the collapse of businesses with fewer than 20 employees, according to a study of insolvency which analyses Treasury, bank, economic and industry data.

“Most of these insolvencies receive little or no broader public or media attention, standing in stark contrast to the enormous exposure given to large corporate failures,” says the study, Insolvency Report 2014, commissioned by insolvency and business recovery experts Jones Partners.

Michael Jones, the managing principal of Jones Partners, says a significant trend is the contribution to unemployment as the result of the collapse of small enterprises employing fewer than 20 people.

“The loss of jobs attributed to large corporate failures is actually less than overall employment losses involved in smaller company insolvencies,” he says.

Indicative analysis based on ASIC data suggests that in 2012-13 large company failures (firms with greater than 200 workers) involved the loss of approximately 6,250 jobs.

This compares to a loss of more than 74,000 jobs associated with smaller company (businesses employing less than 19 workers) insolvencies that year.

The report says:

“The loss of jobs which is perhaps the largest popular media issue surrounding large corporate failures is actually smaller by many orders of magnitude than overall employment losses involved in smaller company insolvencies.”

Companies which employ fewer than 20 workers comprised around 81% of external administration reports in 2012-13.

The asset and liability pattern is also skewed towards smaller companies.

Last financial year, 85% of corporate insolvencies had assets of less than $100,000 and 43% had liabilities of less than $250,000.

In terms of industries, insolvency activity is concentrated in construction, retail trade and business and personal services.

These sectors are the heartland of SMEs in Australia but in 2012-13 they represented almost 60% of corporate insolvencies.

This chart shows the gradual rise of insolvencies in Australia:

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