The Australian business landscape is wrestling with a surge in insolvencies, which reflects the mounting economic pressures weighing heavily on enterprises across various sectors.
As businesses navigate a complex web of challenges, from skyrocketing costs to decreased consumer spending, we’re seeing an increase in businesses of all sizes adjusting to this increasingly turbulent environment.
Small businesses, particularly, are seeing a rise in insolvencies amid challenging operating conditions. The Australian Taxation Office (ATO) is pressing forward with debt collection efforts and has been reluctant to establish payment plans. Furthermore, financing costs are escalating, making it increasingly difficult for businesses to secure funding.
Insolvency Rates Soar
Recent statistics show that insolvencies have reached their highest levels since 2015. We’re seeing a 41% increase from the previous year and a 145.7% rise since 2022. The construction and hospitality sectors, in particular, have borne the brunt of this crisis, with sole traders and small-to-medium enterprises (SMEs) facing heightened financial stress in these industries.
High-Risk Sectors: Construction and Hospitality
While 2023 centered heavily around construction industry insolvencies, in 2024, we are seeing insolvencies across industries, and it appears that the COVID hangover has finally caught up with the hospitality industry.
We have seen many upmarket/well-known establishments close due to insolvency and industry difficulties. Restaurants are facing a double-edged sword: costs and wages are increasing while customer spending is down, and where significant forward billings used to be commonplace, they are now seeing more last-minute walk-ins, which makes it difficult to manage staffing and inventory levels efficiently.
Moreover, commercial landlords still expect significant rental increases that restaurants can’t simply afford.
Regional Disparities and Mortgage Stress
The impact of insolvencies is not evenly distributed across the nation. Western Sydney and southeast Queensland have experienced the highest concentration of business failures. At the same time, regions like Victoria, Adelaide, and North Queensland have fared relatively better due to more established businesses with lower debt burdens.
Government Intervention and Relief Measures
Recognising the situation’s gravity, federal and state governments have implemented various relief measures and subsidies. The NSW government, for instance, has introduced energy and toll relief initiatives to alleviate some of the financial strain on businesses. However, these efforts may only provide temporary respite as the underlying challenges persist and evolve.
Many business owners face a scary situation, and the road ahead is challenging. Businesses must remain agile, innovative, and adaptable in the face of these unprecedented economic pressures. Business owners with a proactive mindset who don’t ignore the warning signs will fare best.
If red flags are appearing in your business operations, we can help. Contact us for a confidential discussion today.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.