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"The number of business failures has jumped by more than a quarter from a year ago" according to a report from BWA Insolvency.

Data for February 2024 shows a significant jump in insolvency appointments, which were 50% higher than the average of the previous three years (New Zealand Insolvency and Trustee Service (ITS)). This increase is attributed to a combination of creditor pressures and tougher economic conditions (interest, inflation, pricing, consumer spending, and supply chain pressures) which reduce the likelihood of solvent liquidations​ (mvp.co)​.

This trend reflects a broader pattern seen in 2023 and is expected to continue, where insolvency rates have been climbing compared to the relatively stable numbers in 2021 and 2022​, and previous years.

The construction sector has seen insolvencies rise by 53% over the previous year, making it one of the sectors most affected by insolvency proceedings. This is largely due to the combined pressures of rising prices, supply shortages, and decreasing demand​ (Asia Pacific Infrastructure).​

Overall, the trend towards higher insolvency rates is expected to continue throughout 2024, as businesses that have been struggling, particularly those weakened during COVID-19, face ongoing economic challenges​ (Anthony Harper Lawyers)​. 

So, what can businesses and leaders do to help weather these pressures?

• Cost Management: Careful review and management of costs can help businesses maintain profitability. This includes renegotiating contracts, reducing non-essential expenses, and optimising operations to be more efficient.

• Cash Flow Management: Maintaining healthy cash flow is crucial, especially in times of economic uncertainty. Businesses can improve cash flow by speeding up receivables, extending payables without damaging relationships, and maintaining a cash reserve (ideally, built up during more profitable periods). 

• Diversification: Diversifying revenue streams can help mitigate risks associated with economic downturns. This could involve expanding into new markets, developing new products, or adapting existing offerings to meet changing consumer demands. We all remember the COVID 'pivot' - iterating product, service or business models to adapt to new pressures and needs can also support longer-term viability.

• Strengthening Customer Relationships: Building and maintaining strong relationships with customers can provide a stable revenue base. Engaging with customers through personalised communication and improving customer service can enhance loyalty and increase repeat business.

• Leveraging Technology: Implementing new technologies can lead to greater efficiencies and cost savings. Automation, digital marketing, and e-commerce platforms can open up new sales channels and improve operational efficiency.

• Debt Management: Refinancing existing debts to secure lower interest rates, principal repayment holidays, or more favourable terms can reduce financial burdens. Speaking to banks and other lenders about cashflow facilities can help with temporary relief but it's also important to avoid over-leveraging with new debts that might be difficult to service later.

• Scenario Planning: Preparing for multiple scenarios can help businesses anticipate potential challenges and respond more effectively. This includes having plans for sudden drops in revenue or disruptions in the supply chain.

• Restructuring or reorganising your workforce: assessing workforce capabilities, productivity, and alignment with strategic goals and needs helps to identify any role or knowledge redundancies. Voluntary departure initiatives and training or reskilling are good options for realignment. Whatever your approach, ensure you comply with local laws and seek professional advice before taking action.  

• Seeking Professional Advice: Consulting with financial advisors, insolvency specialists, or business mentors can provide insights and strategies specific to business needs and circumstances.