More businesses will fail even though signs of a recovery are being seen in the economy, a business expert says.
Bruce Gemmell, head of transactions advisory at accountancy firm Ernst & Young, said history showed it could take up to four years before some businesses collapsed after a financial crisis.
"Business often don't fail on the plunge to the bottom because they have capital they can tap in to."
But when a recovery took longer or was slower than expected, some businesses were caught out. "They run out of air on the way back up."
Gemmell said he expected to see more business failures in the next 12 months and some would be driven by the banks becoming more aggressive.
Although the availability of credit had improved, Gemmell said some banks would also begin calling in their loans and deciding which businesses to support.
"They are starting to pick winners."
He expected to see a pick-up in merger and acquisition activity for the rest of the year as well as initial public offers (IPOs), an area which had been virtually dormant in the past 18 months.
"They may be voluntary or may involve a bit of pressure from financiers."
Retailer Kathmandu is widely expected to list before the end of the year and Pyne Gould Corporation has already embarked on its IPO. But Gemmell expected to see several other listings on top of those.
However, he believed credit would remain tight and in light of this businesses should continue to focus on improving their cash management.
An Ernst & Young survey of executives in June found New Zealand businesses lagged behind the rest of the world when it came to cash management. It found 82 per cent of New Zealand respondents said cash was a major concern regardless of the size of the firm.
"So improving the way the business manages cash and working capital in an environment where cash continues to be hard to come by is a good starting point in any survival plan."
That could involve restructuring, reducing staff and cutting of discretionary spending.
