The second half of 2024 brought alarming news for Australian businesses, with ASIC data revealing a 47% increase in insolvencies compared to the same period in 2023. This trend signals growing financial distress across nearly all sectors of the economy, with construction, accommodation, and food services being hit the hardest. For small businesses, this is a critical moment to assess their financial health and prepare for the challenges ahead.
The Factors Driving Insolvencies
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ATO’s Stricter Tax Collection Approach
The ATO is ramping up efforts to recover $52.8 billion in collectable debt, as noted in its 2023–24 annual report. After years of leniency during the COVID-19 pandemic, the tax office is returning to pre-pandemic collection practices, leaving many small businesses struggling to meet their tax obligations. -
Economic Pressures
Inflation continues to push up the cost of doing business, while cost-of-living pressures are reducing consumer spending. Combined with higher labor costs, many businesses are finding it increasingly difficult to stay afloat. -
Post-Pandemic Fallout
The effects of the COVID-19 pandemic are still being felt. As Thomas Dawson, a principal at Small Business Restructuring Specialists, notes, the shutdowns and disruptions of the past few years have created a ripple effect, and the ATO’s collection efforts are only just beginning to play out.
What the Numbers Show
Between July and December 2024, 1,827 construction companies entered external administration, a staggering 29% increase compared to the same period in 2023. This sector, alongside accommodation and food services, has been particularly vulnerable to rising costs and decreasing demand.
Despite these concerning trends, restructuring is offering a lifeline for some businesses. Dawson highlights that many small businesses are leveraging faster, cheaper restructuring processes introduced by 2021 legislation to manage their debts and avoid closure.
Looking Ahead
The outlook for 2025 remains challenging. Dawson predicts that insolvency appointments could reach 15,000 for the year, driven by the ATO’s unwavering debt collection efforts and the lingering effects of the pandemic.
For small businesses, this means the time to act is now. Businesses need to:
- Monitor Financial Health: Regularly review cash flow, debt levels, and overall financial stability.
- Engage Professional Advice: Consider consulting with restructuring specialists to explore options for managing tax debts and other liabilities.
- Stay Informed: Keep up to date with ATO collection trends and any new support measures that may become available.
How We Can Help
At VI Partners, we understand the immense pressure small businesses are under. Whether it’s navigating tax obligations, exploring restructuring options, or managing rising costs, our team is here to provide the advice and support you need.
The road ahead may be challenging, but with the right strategies in place, businesses can weather the storm and position themselves for long-term success.
Contact us today to discuss how we can assist you in managing the financial challenges ahead.