NSW named “boom and bust” start-up state

New South Wales recorded the largest number of new start-ups among the states in the March quarter but was also the state with the greatest percentage of failures, according to a new report.

According to Dun & Bradstreet’s latest analysis of business start-ups and failures, the number of new businesses in the March quarter remained constant with 2010 figures on an annualised basis.

The report reveals that 37,910 new businesses commenced operations in the March quarter, with NSW experiencing the largest number of start-ups.

NSW also attracted the highest number of businesses changing their primacy place of residence, with 21% relocating to the state, compared to 18% who moved to Victoria and 13% who moved to WA.

A total of 35% of relocating businesses departed Tasmania, followed closely by Queensland at 34%, while 22% left South Australia.

Damien Karmelich, director of corporate affairs at Dun & Bradstreet, says the start-up rate in NSW reflects its size.

“For all its challenges, it is the largest market. I think also though, for NSW, it’s a positive sign that perhaps people are starting to feel that the NSW economic environment is starting to perhaps improve somewhat,” he says.

“One [factor] would most definitely be the change of government, and I think that if you look at consumer sentiment around the country – and if you look at house prices – the one state that’s holding its own at the moment is NSW.”

With regard to business failures in the March quarter, Karmelich says it’s encouraging to see the rate hasn’t increased. However, it should be noted that business failures jumped 23% in 2010 year-on-year. This means the volume of business failures remains at historically high levels.

According to the report, 2,340 firms failed in the March quarter. This compares to the total number of business failures in 2010 of 10,039.

The manufacturing sector recorded the greatest percentage of business failures, followed by the mining and wholesale trade sectors.

And while NSW emerged as a start-up hub in the March quarter, it also recorded the highest number of business failures at around 1,200.

According to Dun & Bradstreet, the report indicates that the impact of natural disasters on Australian businesses was not disproportionate, with nearly half of all business failures originating in NSW.

This suggests that general economic and business conditions are the key factors in business failure.

Dun & Bradstreet says while the macroeconomic environment is enticing entrepreneurs into the marketplace, it is also causing financial distress as a result of poor management of business fundamentals.

The report reveals that weak business cashflow as trade payment terms deteriorated to three-year highs; all firms took an average of 55.6 days to pay their trade accounts.

This represents the slowest payment terms in three years and the second slowest in the decade.

The NSW figure was higher than the national average, with firms in this state taking an average of 57.5 days to pay their trade accounts.

Finally, the number of firms paying bills in a severely delinquent manner – in more than 90 days – increased 20%, while the number who took more than 60 days to pay increased 43%.

“Deteriorating payment terms signal that cash flow is tightening for most firms and it is this weak cashflow that primarily drives business stress,” Dun & Bradstreet says.