New figures from CreditorWatch’s June Business Risk Index paint a grim forecast for hospitality operators, with 1 in 11 businesses predicted to fail in the next 12 months.
The business failure rate has increased by 8.8 per cent across all industries in the last year, but the figures relating to the hospitality sector are particularly harsh.
The hospitality business failure rate is forecasted to rise from 7.5 per cent to 9.1 per cent.
The figures are credited to the industry’s heavy reliance on discretionary spending, which has seen customers cut back on dining out and instead focusing on essential spending.
Western Sydney and South-East Queensland both show high rates of potential business failure, with Bringelly-Green Valley, Merrylands-Guilford, and Canterbury the three worst-performing areas.
Worst-performing regions
Meanwhile, the best-performing areas were those with established businesses and older residents.
The regions with the lowest risk of business failure are located in regional Victoria, inner-Adelaide, and North Queensland, with Adelaide coming out as the top-performing capital city CBD.
The average values of invoices held by businesses has also fallen 49.9 per cent over the year, which is a reflection of businesses reducing their inventory due to economic pressures and declining customer spending.
Rising invoice payment defaults have also continued to rise since mid-2021.
“The combination of declining order values and increasing payment defaults is a major concern as it indicates more businesses are experiencing both cost and demand pressures,” says CreditorWatch CEO Patrick Coghlan.
“With another rate increase becoming increasingly likely, we expect both metrics to deteriorate even further.
“It is small businesses that are hurting the most as they are more vulnerable to adverse economic conditions than larger businesses. They operate on tighter margins and are less able to take measures to cut costs.”
Monetary policy settings teamed with rising prices of essentials have all had negative effects on Australian small business.
In addition, areas with younger populations and businesses in the hospitality sector have been impacted the most, with unemployment also forecasted to rise after a period of stability.
