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Bankruptcy warning: ‘Disturbing’ trend putting Aussie workers out of a job

“All the data is pointing to another challenging Christmas trading period."

More Australian businesses will be on the brink of collapse next year, with new data showing a “particularly bleak” outlook for owners trying to cash in on the previously bumper spend period of Christmas.

Business activity is at “disturbingly low levels” and spending from cash-strapped Aussies isn't expected to rise from the record-low identified in the October CreditorWatch Business Risk Index.

Payment defaults - a “leading indicator of the likelihood of business failure” - are also trending up.

And, while workers in food services recorded the highest wage growth of any industry in Australian Bureau of Statistics data released today, those in the hospitality sector are "by far" facing the highest likelihood of their employer plunging into administration.

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That means the dreams and financial stability of those running the cafe you get your morning coffee from, or the new restaurant trying to break into the market could be on the line.

Are you a struggling business owner? Contact belinda.grantgeary@yahooinc.com

A graph showing an upward projection for the number of Australian businesses predicted to collapse next year.
This graph shows a grim projection for the number of Australian businesses predicted to collapse next year. (Source: CreditorWatch Business Risk Index)

What is driving the bankruptcy trend in Aussie businesses?

Chief economist for CreditorWatch Anneke Thompson said business failure rates were currently quite low, but “reasonable conditions won’t last” since both business and consumer sentiment has fallen after the Reserve Bank of Australia’s (RBA) decision to hike rates for a 13th time last week.

“We expect that [business failures] will quickly increase over the next 12 months to around 5.8 per cent,” Thompson said.

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“This is broadly the level that the failure rate was just prior to COVID. However, the speed at which we expect the rate to change is quite pronounced, and more businesses folding or going into administration is likely to have a noticeable impact on business sentiment overall throughout 2024.”

Melbourne was found to have the most improved conditions for businesses in the past year, with Sydney’s inner city now ranked the worst.

The 34 per cent drop since last year has been blamed “in large part to consumer demand contracting”.

Spending fell in seven categories, including recreation (-4.7 per cent), hospitality(-4.5 per cent) and food and beverage (-1.3 per cent), according to CommBank’s monthly household spending insights.

Businesses in the food and beverage services sector remain the most at risk of payment defaults and have the highest proportion of external administration “by far”, according to CreditorWatch.

One in 100 goes into administration each year, which is attributed to the “risky nature” of the sector, which is hit hard by changes in demand, pricing and stiff competition.

Business owners banking on a Christmas boost are being warned to prepare for the worst.

“Order values are dropping, therefore so are revenues, and margins are also being squeezed through inflation,” CreditorWatch CEO Patrick Coghlan said.

“That is causing an increase in the number of businesses that are unable to pay their invoices to suppliers, and that is a real worry because those defaults greatly increase the chance that a business will not survive into the future.

“All the data is pointing to another challenging Christmas trading period so it is prudent for businesses to follow up on outstanding debts before then.”

While the tightening of monetary policy by the RBA has the desired effect of bringing down spending, Australians looking for a deal may spend more as sales like Black Saturday and Cyber Monday take off.

Westpac’s consumer survey found 40 per cent of respondents intended on spending less on gifts for Christmas this year, which Thompson argued “points to a particularly bleak Christmas outlook for Australian retailers”.

“It is likely that Black Friday sales in late November will be very strong, as consumers hunt for bargains and carefully plan their Christmas spending. However, December spending is likely to be weak, as consumers avoid making last-minute, full-priced purchases.”

Aussie regions most at risk of business collapse

  1. Merrylands-Guildford, Sydney

  2. Canterbury, Sydney

  3. Bankstown, Sydney

  4. Ormeau-Oxenford, Gold Coast

  5. Auburn, Sydney

  6. Southport, Brisbane

  7. Surfers Paradise, Gold Coast

  8. Kogarah-Rockdale, Sydney

  9. Broadbeach-Burleigh, Gold Coast

  10. Casey - South, Melbourne

Source: October 2023 CreditorWatch Business Risk Index

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