The higher number of bankruptcies in 2022 is not a concern, it is part of the natural business cycle: Economist

SINGAPORE – Although the number of companies that will have to close in 2022 is slightly higher than in the previous two years, the public should not be worried.

Rather than looking at the absolute number of bankruptcies, it is more important to look at the percentage of bankruptcies compared to the number of new businesses, CIMB economist Song Seng Wun told The Straits Times.

Unlike in the past, bankruptcies today are associated with fewer taboos, he said.

This means that more people are willing to take risks, which results in more companies being founded today – and naturally more of them will fail. So it’s more critical to look at it as a percentage rather than an absolute number, Mr. Song added.

As many as 205 companies were forced to liquidate in 2022, according to data published by the Ministry of Law.

That’s more than the number of forced closures in 2021 and 2020, when 191 and 201 companies were forced to close permanently, respectively.

The number of bankruptcy filings in the first 11 months of 2022 also reached a high of 3,380, close to 2019 levels after two years of decline.

As life returns to normal after the Covid-19 pandemic, companies that previously experienced rapid growth during the pandemic may have to pivot in order to stay in business.

For example, businesses that specialize in virtual events may see a drop in demand as more in-person activities return.

On the other hand, those in the tourism industry are likely to see a surge in demand, especially with the reopening of China’s borders, Mr. Song said.

However, the most important aspect of keeping a company going through tough times is maintaining a healthy cash flow. A consistent and sustainable cash flow would allow the company to pay its bills and invest in growth, continue operations and meet other financial obligations.

The number of bankruptcies is also subject to time lag, Mr. Song said. This means that the bankruptcies in 2022 were a reflection of the problems that companies would have faced in the last few years.

The outcome of the latest Singapore Business Federation (SBF) National Business Survey – conducted between Aug 29 and Nov 23, 2022 – showed that businesses here are becoming more cautious in the new year as recession concerns and business costs rise.

A total of 931 companies were surveyed and almost all of them, i.e. 97 percent, stated that they expect inflationary pressures to continue in 2023.

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