Things Are Worse Than They Seem, But Getting Better

shopping arrows

Dun & Bradstreet recently published its U.S Business Trends Report for October 2009 (which is an update to their June 2009 report found here) and like much of the financial news coming out recently, there is both good and bad news.  The report comes to three main conclusions and I’ve included explanation and commentary for each one:

  1. The total number of business failures exceeded 95,000 in June 2009 which is more than double the number of bankruptcies reported by the U.S. Government.
    • The reason for the discrepancy as described by D & B is that there are businesses that fail without ever going through the bankruptcy system and, as a result, don’t get recorded by U.S. government statistics.  D & B uses indicators such as non-responses by businesses to their inquiries following a history of late and delinquent payments to their suppliers
    • While the discrepancy is shocking at first, at the end of the day this should come as no surprise. Common sense tells most of us that not every business that closes goes through bankruptcy.
    • The number of bankruptcies reported by the U.S. Government increased by 50% from June 2008 to June 2009. In contrast, the number of business failures increased by 36% – certainly a trend in the right direction.  The actionable information comes when looking at the detail.

     

    business failure rates

    Source D & B US Business Trends Report – October 2009

  2. Overall business failures have improved in the past year but there are still industries that remain behind the U.S. Averages including transportation, construction and business services.
    • With major spikes in fuel and energy costs over the past 2 years and the well documented real estate struggles, it’s probably no surprise that lagging industries include transportation and construction.
    • Looking at the other end of the spectrum, what opportunities are there for your business with healthier industry segments?  In June 2009, Health Services and Natural Resources topped the list with the lowest failure rates. Are there verticals in these industries that your business could focus on?
    • For the most stable part of the country you’ll need to head to the rural states of North Dakota, Wyoming and Iowa – these states had the lowest failure rates in June 2009.  According to D & B, the reason for the lowest failure rates in these areas is the stable presence of agricultural industries.  States with the highest failure rates include Tennessee, Nevada, California (it’s worth noting that both Tennessee and Nevada also had the highest failure rates in June 2008).

     

    Monthly delinquency rates

    Source: D & B US Business Trends Report – October 2009

  3. D & B (which tracks payment history for millions of businesses) saw a decrease in delinquency rates in Q2 which is considered a leading indicator of bankruptcy rates.
    • This is certainly good news for a lot of businesses. We speak to thousands of businesses every day and collections is a major issue for virtually all businesses.
    • Industries that were still hard hit by delinquency rates in June 2009 are manufacturing, wholesale and retail. According to D & B’s analysis, the manufacturing and retail sectors continue to be affected by decreased consumer spending while wholesale firms are more susceptible to cash flow issues given the inherent nature of their position as an intermediary. Business services and natural resources had the lowest delinquency rates in June 2009.
    • If your business is affected by cash flow issues, we recently did a free Webinar on collections best practices that is worth your review.  There are also short-term cash flow solutions that can help bridge the gap in your collections cycle.

Share your experiences with us- are Dun & Bradstreet’s findings congruent with your market?

Photo credit to http://www.sxc.hu/photo/1331435

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