Small business defaults are on the rise with hospitality businesses at highest risk of insolvency, closely followed by transport, postal and warehousing, and arts and recreation services, according to findings from the latest CreditorWatch Business Risk Report.

Falling consumer demand, rising costs, skills and staff shortages and more are creating a perfect storm of difficulty from all sides.

The latest CreditorWatch Business Risk Index shows projected default rates for the next 12 months far higher than last year – and higher than big businesses.

Cash flow catastrophe for small business

Trends reveal slowing overall trade as discretionary spending declines, coupled with a 30 per cent rise in trade payment defaults as small businesses struggle to get paid, further impacting their already-tight cash flow. Meanwhile, credit enquiries are up a whopping 102 per cent year-on-year as small businesses seek to work with creditors to make ends meet.

Food and beverage services are at highest risk of insolvency, closely followed by transport, postal and warehousing, and arts and recreation services, due to their reliance on discretionary spending, as well as ongoing labour shortage and supply chain challenges. And it’s the small businesses that are bearing the brunt of these trials as the economy continues to falter.

CreditorWatch Chief Economist, Anneke Thompson, says we are now entering a very difficult stage for businesses to operate in.

“The economy is in the early stages of its downturn,” she says. “Prices are still rising, and although we appear to have the worst of the price rises behind us, interest rates are likely to need to increase further, while consumer demand is slowing, and will continue to slow.

“The immediate impact is being felt by smaller businesses that are reliant on discretionary spending, before the impact flows through to the rest of the economy, including those businesses not directly exposed to consumers.”

Unfortunately, the proof is in skyrocketing external administrations which have jumped 46 per cent from January to February to near the 24-month average. The embattled construction industry saw 125 external administrations in February, almost twice the number of the second ranked industry, Accommodation and Food Services.

The industries with the highest probability of default over the next 12 months are:

1. Food and Beverage Services: 7.19%
2. Transport, Postal and Warehousing: 4.60%
3. Arts and Recreation Services: 4.58%

The industries with the lowest probability of default over the next 12 months are:

1. Healthcare and Social Assistance: 3.24%
2. Agriculture, Forestry and Fishing: 3.47%
3. Wholesale Trade: 3.56%

CreditorWatch CEO Patrick Coghlan says the February results show that Australian businesses are under increasing stress. “Australian businesses are doing it tougher now than they have since the GFC back in 2009,” he says. “The businesses that have proper credit risk management processes in place and are monitoring the health of their ledgers will weather this storm much better than those that don’t.”

With these concerning figures in mind, we urge all soloists and small biz owners to keep in touch with your trusted business advisors for professional advice as you navigate these uncertain times.

And if you’re facing cash flow concerns, skills/staffing issues, or burnout, take a look at these sections on the KBB website which are packed with excellent advice and actionable tips from small business experts to help you hang in there:

• Cash flow advice for small businesses
• HR tips to find and keep great staff
• Wellbeing and mental health advice

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https://www.kochiesbusinessbuilders.com.au/3-warning-signs-your-business-is-heading-for-insolvency/