In the vibrant tapestry of Australia’s economic landscape, a troubling trend has emerged – the steady decline of business health. Despite our reasonably robust economy and entrepreneurial spirit, an alarming number of businesses are succumbing to insolvency. From small startups to established corporations, the spectre of failure looms large, leaving many puzzled as to the underlying causes of this epidemic.
Recent insolvency statistics paint a stark picture of the situation. According to data from the Australian Securities and Investments Commission (ASIC), in the nine-month period from 1 July to 31 March 2024, 7,742 companies entered external administration, an increase of 36.2% on the previous corresponding nine-month period ending March 2023.
The industries where we’re seeing the greatest percentage of external administrations is in construction (2,142) and accommodation and food services (1,174).
The data also shows that restructuring (878) and court liquidation appointments (1,593), which represents an increase of 294.6% and 218.8% respectively.
It is expected that by the end of this financial year that more than 10,000 business will have entered administration. Whilst administration does not always lead to the liquidation of a business, it often does. By the time most businesses enter administration and an insolvency practitioner is appointed, its often too late to resurrect the business.
So, what is driving this surge in business failures? The answers are complex and multifaceted, rooted in a confluence of economic, social, and regulatory factors.
Not surprisingly, one prominent factor contributing to the rising tide of insolvencies is the economic uncertainty exacerbated by global events such as the COVID-19 pandemic. The pandemic unleashed unprecedented challenges upon businesses, disrupting supply chains, stifling consumer demand, and triggering financial instability. Many businesses, particularly those in sectors heavily impacted by lockdowns and restrictions, struggled to stay afloat amidst the economic turbulence and haven’t recovered.
The flow-on effects from the COVID-19 pandemic have resulted in runaway inflation that has now been tamed by 13 interest rate hikes since May 2022. As a result, consumer sentiment has dipped and certain sectors have been significantly affected. Whilst inflation is still higher than the RBA’s target rate of 2-3%, spending is still reasonably high due to the increase in cost of items such as fuel, electricity and food and of course finance.
Whilst customers are still spending as inflation remains stubborn, the structure of that spending has changed and is affected some sectors more than others.
The question is, how do we stem the bleed of small to medium businesses failing during these tough market conditions? All too often business principals seek help too late. The reasons for failing to deal with business distress can vary. Oftentimes, a business owner is heavily invested in their business, both financially and emotionally. It’s the decisions driven solely by emption that sometimes don’t make financial sense. Other business owners may remain optimistic despite increasing financial success; the thought that things can only get better often develops.
At D2 Consulting we have extensive experience in building and resurrecting businesses. We also have a comprehensive skillset that you are unlikely to find outside the big consulting firms. We’re also agile and can quickly and easily get to the root cause of your business distress and send you on the path to correction.
