Start-up rate surges 16% in June quarter: D&B

More than 41,000 new businesses have entered the market since the March quarter, according to new Dun & Bradstreet data, but the amount of retail start-ups fell 91% in the 12 months to June 2011.

According to the latest D&B Business Failures and Start-ups Analysis, 41,067 new businesses entered the market in the June quarter – a rise of 16% since the March quarter.

While the number of new businesses grew overall, the number of start-ups in the retail and service sectors fell dramatically, suggesting most start-ups are opting for online trade over the uncertain nature of bricks-and-mortar.

According to the report, retail start-ups fell 91% in the 12 months to June 2011, while the number of new service-based firms fell 85%.

NSW, Victoria and Queensland recorded the most new firms, but the number of start-ups in these states has dropped an average of 20% since the March quarter.

D&B chief executive Christine Christian says the start-up rate in key consumer-driven industries is almost non-existent.

“[This] shows a lack of confidence in the current market and often a lack of credit access. The drop in the number [of] new small businesses indicates credit providers are failing to identify key credit markets,” Christian says.

In addition to the alarming lack of start-ups in the retail and service sectors, the data highlights the tough trading conditions stifling small businesses.

The report reveals 2,898 firms failed during the June quarter – a 25% increase since the March quarter and the highest level in 12 months.

Small firms – and those in the retail, finance and service sectors – recorded the highest failure rates. Business failures rose 53% in construction and 40% in retail.

Firms employing between one and 49 staff recorded more than double the number of failures, while businesses with 500 or more employees experienced a drop in insolvencies.

Failure rates rose 20% for firms with one to five employees, and 30% for those with six to 19 employees. According to Christian, the results aren’t surprising.

“Cashflow is the mitigating factor here, particularly for small businesses that feel the effects a lot faster than large companies with cash reserves to match,” she says.

Meanwhile, the latest Small Business Sales Trends report by ANZ reveals growth in small business sales slowed to 2.4% year-on-year in July, with traditional retailers the hardest hit.

The data is based on the value of credit and Eftpos transactions processed through ANZ systems, and card transactions processed through other systems, for businesses at least two years old with annual turnover less than $5 million.

The report reveals small business sales were up only 2.4% year-on-year, compared with the previous month’s growth of 6.6%, led by a 5.3% drop in retail sales.

The business services sector and restaurants continue to outperform, with sales growing at 4.8% year-on-year and 11.3% year-on-year respectively.

Nick Reade, ANZ general manager for small business, says softer trading conditions are in line with anecdotal evidence from retailers, who said July was a tough month.

“The effects [of consumer caution] are certainly being felt by many small businesses, particularly those in the traditional retail sectors where sales are significantly down,” Reade says.