Sadly the number of Kiwi businesses and companies closing down is on the rise.
In the first calendar quarter of 2023, there were 265 liquidations, compared with 206 in 2022 and 241 in 2021.
There have also been 38 receiverships, compared to five for the whole of 2022 and 11 in 2021.
There are six voluntary administration appointments so far this year, compared with three each for the previous three years.
The construction industry has been the biggest hit, with building and construction companies now being liquidated at twice the rate of food and hospitality industries.
So why is this happening, what is liquidation and how can you avoid it?
Why are businesses struggling?
Small and large businesses alike are experiencing a perfect storm.
Businesses may still be feeling the effects of the pandemic, coupled with major increases in costs, reduced customer spending, supply chain issues, delayed debtor payments, global market volatility and a constrained labour market.
While many were keeping above water due to Government support during the pandemic, the cracks are starting to show now we’re well into pandemic recovery.
“The decision is either made by a court order or a resolution by your creditors with the company closing immediately after the decision”
What is liquidation?
Basically a company can be placed into liquidation if it is unable to pay its debts.
The decision is either made by a court order or a resolution by your creditors, with the company closing immediately after the decision. A liquidator will then be appointed.
It’s important to cooperate with the liquidator, so any financial and business affairs can be resolved.
You can learn more about the liquidation process through the NZ Companies Register.
How can I avoid going bust?
In survival mode, the amount of cash available is vital. Acting early can help protect your cash flow and increase your chances of surviving.
A list of actions that could help:
- Chase unpaid invoices – make sure you’re getting paid for your hard work.
- You can consider other sources of capital. That might be tapping into savings, liquidating shares or borrowing from family members. But remember that taking on additional debt can be risky.
- Analyse what you're currently spending. Look at your balance sheet and your budget. Delve into your production costs and do an in-depth analysis of your current processes.
- Sell unnecessary assets to help your cash flow. This could be property, machinery or vehicles.
- Look at where you can cut costs, even if it’s a seemingly small amount such as a monthly subscription. Every little bit counts.
- No one wants to lose valuable employees, but if it’s the difference between keeping your business afloat or letting it sink, you may want to consider how you can reduce staff costs.
- Remember your current customers are your most valuable asset. Focus on retaining their business.
- Retain a high level of product or service to ensure your performance doesn’t diminish. A Google review or word of mouth review can go a long way.
When the going gets tough, the tough get going
By being strategic in your approach, this can help you weather the storm and help to you avoid going bust.
Pay attention to what’s still working and what might need changing.
Approach this exercise as not only a challenge but also an opportunity to review the ways you do things and make changes that could help your business flourish.
Trade credit insurance can help protect you
This type of insurance can cover you if your debtors do not pay, including if they go into liquidation.
A Steadfast broker can advise if trade credit insurance is right for you.
Important - Steadfast NZ Limited, its related companies and associates
This article provides information rather than financial advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs.
Find a Steadfast Insurance Broker near you
Important notice - Steadfast Group Limited ABN 98 073 659 677 and Steadfast Network Brokers
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
Information is current as at the date the article is written as specified within it but is subject to change. Steadfast Group Ltd and Steadfast Network Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Steadfast Group Limited.