ASIC’s annual insolvency data for 2024 shows corporate business failure is up 39% compared to the last financial year (2023).

The industries with the highest representation were construction, accommodation and food services at the top of the list.

This can affect clients and their businesses either:

  • Because the business is faced with cashflow issues and concerns, or
  • They have customers facing cashflow issues, which then has a flow-on effect.

We thought that a few trends might be worthwhile for our business clients to consider. By reviewing your business operation, you can protect yourself against either of these situations.

ASIC data showed that restructuring appointments grew by over 200% in 2023-24. Small business restructuring allows eligible companies—those whose liabilities do not exceed $1 million plus other criteria—to retain control of their business while they develop a plan to restructure their affairs. This is done with the assistance of a restructuring practitioner with a view to entering into a restructuring plan with creditors.

Of the 573 companies that entered restructuring after 1 January 2021 and had completed their restructuring plan by 30 June 2024, 89.4% remain registered, 5.4% have gone into liquidation, and 5.2% were deregistered as of 30 June 2024.

In the latest Reserve Bank of Australia statement, Michelle Bullock stated, “… there are also some signs that the business sector is under a bit of pressure, that the business outlook isn’t as rosy as it was.” Productivity is also lagging.

Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are – the things that make the difference between doing well and going under – then it’s time to find out.

A business becomes insolvent when it can’t pay its debts when they fall due.

The top three reasons why companies fail are:

  1. Poor strategic management
  2. Inadequate cash flow or high cash use
  3. Trading losses
Common problems and warning signs

It’s easy to miss the warning signs and rely on optimism that things will improve if you can just get past a slump. The common problem areas are:

  • Significant below-budget performance.
  • Substantial increases in fixed costs without an increase in revenues – Fixed costs are expenses you incur irrespective of your business activity level. When fixed costs go up, they directly impact your profitability. If your fixed costs are increasing, such as leasing more space, hiring more people, and buying more plant and equipment, but there is no measurable increase in your turnover and gross profit, it might tip you over.
  • Falling gross profit margins – Your gross profit margin is the margin between your sales minus the cost of goods sold. Every dollar you lose in gross profit is a dollar off your bottom line.
  • Funding your business primarily from debt rather than equity finance.
  • Falling sales—If sales are falling, it will have a ripple effect on your business, reducing profit contribution and inhibiting growth.
  • Delaying payment to creditors – Your sales are good, but you don’t seem to have enough cash in the business to pay your creditors on time.
  • Spending in excess of cash flow – Trying to pay today’s expenses with tomorrow’s income.
  • Poor financial reporting systems – Driving your business with a blindfold over your eyes!
  • Growing too quickly – You’re making more sales than your business can sustain.
  • Substantial bad debts or ‘dead’ stock – Customers who won’t pay their accounts and stock you can’t sell.

If you need help with your business, whether you are concerned about cash flow or about protecting yourself against someone going bad as a business owner, please contact us so we can assist you.