Hospitality businesses most at risk of failure

The CreditorWatch July Business Risk Index reveals that 87.2 per cent of Australian regions will see business failure rates rise in the next year.

Food and beverage services are most at risk, with failure rates at 8.3 per cent. Arts and recreation services failure rates follow at 5.8 per cent, making the food and beverage industry higher risk by a considerable margin.

The food and beverage industry also ranks highest for outstanding ATO tax debts above $100,000.

The Australian data and technology company also reports that the average value of invoices held by businesses has dropped 51.5 per cent from July 2023 to July 2024. The drop is credited to lower consumer demand, causing reduced orders from suppliers.

Western Sydney and South-East Queensland are at the highest risk or business failures, while Western Australia is predicted to see the biggest increase in the failure rate.

Regional areas are slightly better off, with business failure rates expected to be lower. The lower risk stems from lower commercial rents, lower competition, older populations and strong local economies, particularly in areas where agriculture dominates.

“The fact that almost 90 per cent of regions will see an increase in the rate of business failures indicates that the current pressures from interest rates, cost increases and declining consumer demand are being acutely felt right around the country,” says CreditorWatch CEO Patrick Coghlan.

Areas with younger populations and higher proportions of businesses in high-risk sectors are feeling the difficulty most acutely, says Coghlan.

The company’s Chief Economist Anneke Thompson says consumer confidence is still incredibly low.

“While consumers are now less fearful of an increase in interest rates, and also report a small positive sentiment increase from tax cuts, the increase in confidence is not nearly enough to suggest that household consumption will recover any time soon,” says Thompson.

“As long as households are spending less, and we know from retail trade data that spending per head of population has decreased for eight straight quarters, businesses will continue to battle high interest rates and continuing high input costs with falling demand.”