Insolvencies Expected to Peak in Mid-2025

Small businesses are bracing for a tough year ahead, with insolvencies predicted to hit their highest point by mid-2025. According to data from CreditorWatch, industries like hospitality are under severe pressure, but potential interest rate cuts could provide much-needed relief. The concern is whether these cuts will come soon enough to stabilise struggling businesses.

Australia's small business sector has been facing increasing financial strain, with the hospitality industry particularly affected. Rising costs, labour shortages and declining consumer spending have all contributed to growing insolvency rates. CreditorWatch’s Business Risk Index suggests that insolvencies are currently at record levels, and this trend is expected to continue into the first half of 2025.

The latest data from the Australian Securities & Investments Commission shows 7,755 insolvency filings between July 2023 and January 2024, a sharp rise from 5,359 in the same period the previous year. The hospitality sector has seen one of the highest increases, with insolvencies in accommodation and food services up 64%. Factors such as rising rent, tax debts and fewer in-office workers have contributed to the financial strain.

With retail spending at cafes and restaurants stagnant since early 2023, businesses are hoping for relief in the form of interest rate cuts. If rates are lowered, consumer confidence could improve, potentially boosting spending in hospitality and other struggling sectors. However, uncertainties around inflation and economic conditions mean businesses remain cautious.

Source: The Australian, Creditor Watch, Insurance Business Magazine, Proactive Investors, Accounting Times