Australian businesses are facing a host of economic pressures, with the business failure rate climbing to its highest levels since the peak of the pandemic. According to CreditorWatch, the current national failure rate stands at 5.04%, up from 3.97% in October 2022. Projections suggest this could rise to 5.8% in 2024, amidst persistent challenges like stubborn inflation, declining consumer demand and rising operational costs.
Key sectors and regional trends
The latest figures from CreditorWatch’s Business Risk Index (BRI) show the food and beverage industry has been the most affected, with a failure rate reaching 8.5% as of October 2023 and an expected rise to 9.1% by mid-2024. Across the sectors, construction, retail and accommodation are experiencing elevated failure rates, all exceeding 5% in October 2023. With multiple headwinds, businesses in these industries are navigating the intensified pressures of reduced consumer spending, higher interest rates and escalating costs.
Geographically, businesses in Sydney’s western suburbs and southeast Queensland face the highest risks. Suburbs like Merrylands, Canterbury and Bankstown report failure rates above 7.5%. In contrast, regional Victoria and parts of Adelaide are faring better, reflecting lower rents and more stable demographic factors.
Strategic responses for businesses
Australia’s small and medium businesses (SMBs) are facing a suite of pressures on multiple fronts, with many grappling with increasing levels of debt stress – making now a critical time to plan and prepare by taking proactive steps to implement solutions for effective debt and cash flow management.
To withstand the growing financial pressures as the second half of FY2025 unfolds, there are practical strategies business owners can adopt, including:
- Seeking professional advice: consulting insolvency experts can help companies manage tax liabilities and explore viable options like payment plans or voluntary administration.
- Improving cash flow management: streamlining accounts receivable processes and reducing unnecessary expenditures can help businesses stay current with their tax obligations.
- Stakeholder communication: early discussions with creditors can lead to more flexible payment arrangements.
- Optimise tax planning: proactive tax planning is essential for minimising tax liabilities and making sound business decisions.
- Engaging early with the ATO: for businesses with an ATO debt, open communication with the ATO to discuss your circumstances, sooner than later, can help prevent more serious recovery actions.
What lies ahead
Whilst slowing inflation and potential interest rate cuts in 2024 may alleviate some financial pressure, business owners need to stay vigilant, addressing the warning signs of financial problems early.
Proactive planning and early intervention, combined with a focus on financial resilience, will be critical for companies aiming to weather the post-pandemic economic storm and get on top of debt.
At AVA Advisory, we understand the unique challenges small and medium business owners face. In these uncertain times, our experienced team of debt solutions experts and corporate advisors can provide practical, actionable advice to help you boost business preparedness, as well as build resilience to financial and operational risks.
Contact us now at 1300 181 220 for a private, obligation-free discussion, or schedule a meeting via our online booking system.
