In general, many companies are overwhelmed by the current challenges, according to the credit protection agency. The “operational causes” for insolvency, such as a lack of organization, have increased sharply compared to 2022, according to a recent KSV survey of the reasons for bankruptcy.
While operational causes rose sharply, “uncontrollable circumstances” such as a pandemic or natural disaster as a reason for insolvency decreased. Sudden increases in interest rates, on the other hand, are negligible as a reason for bankruptcy. Rene Benko’s Signa companies, for example, blamed the ECB’s interest rate moves for their insolvency in the wake of their billion-dollar bankruptcies.
“Many companies overwhelmed”
“For about a year now, we have seen that the number of current challenges is overwhelming many companies,” says Karl-Heinz Götze, insolvency expert from the Credit Protection Association (KSV1870). Ultimately, insolvency is then declared. Across Austria, 5,380 company bankruptcies were recorded last year, which corresponds to an increase of 13 percent compared to 2022. The upward trend is continuing clearly this year.
The operational causes increased from 29 to 37.1 percent. The strongest sub-point here is weak sales related to advertising, sales and calculation and 9.7 percent (2022: 6.8 percent). This is followed by a poor cost structure due to deficiencies in organization and weaknesses in planning or a lack of controlling, each at 8.9 percent (2022: 8.2 and 8.1 percent respectively). 8.8 percent (2022: 5.2) were due to financing weaknesses and problems in liquidity or debt collection. Errors in the selection or poor selection of employees account for 0.8 points.
Founding errors
The KSV now lists errors in the start-up process as the second strongest reason for insolvency, but this remains the case for a good fifth. In 2022, they were responsible for 21.6 percent of bankruptcies, compared to 20.5 percent in the previous year. The main sub-point here is a lack of know-how for the industry or in business administration, at 11.2 percent (2022: 12.9). Other points include a lack of suitability to start a business at all (4.8 percent and 4.6 percent in 2022) and too little equity when starting a business (4.5 percent and 4.1 percent respectively). “In order to be successful, it is necessary to know the mechanisms of the market, the competition and the individual target groups in detail,” Götze reminds us. “The fact that this is apparently still not common practice today is worrying.”
Uncontrollable circumstances as a reason for bankruptcy fell from a good 28 to 19 percent. Despite the Russian war in Ukraine but as the Corona pandemic subsided, natural disasters, acts of war, terrorism and pandemics fell from a good 22 to 13.4 percent as a cause of bankruptcy. Illness or accidents in the personal environment accounted for a relatively stable 5.6 percent in 2023, with a small decline of 0.5 points.
“Volatile times”
External events such as changes in the financing framework such as interest rates, sudden legal changes, for example due to embargoes or bankruptcies of customers or suppliers, recently accounted for 2.7 percent (2022: 1.5 percent). “In such volatile times as we are currently experiencing, it is crucial to react quickly to market changes,” emphasizes KSV expert Götze. A change in awareness is also needed here, “because market changes always offer an opportunity to grow and stand out from the competition,” says the expert.
Other causes of bankruptcy are personal fault or negligence at 11.1 percent (2022: 12.2 percent). Strategic causes recently accounted for 9.6 percent (2022: 7.4 percent).
