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Escalating cost pressures and assertive Tax Office collection activities is driving small businesses into insolvency, according to the latest ScotPac SME Growth Index Report.
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Accelerating insolvencies strike concern for SMEs, report reveals
02 January 2025
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ScotPac has released the latest version of its SME Growth Index report, indicating that thousands of Australian SMEs were facing a ‘survival test’ as rising costs and ATO collections accelerate insolvencies.
The report, an established pulse check of SME confidence and growth prospects, found 25 per cent of Australian SMEs said they could be tipped into insolvency risk if they suddenly lost just one key client or supplier.
ScotPac said this came off the back of a year of surging business insolvencies driven by the two main factors of escalated cost pressures and increased collection by the Tax Office.
ScotPac CEO Jon Sutton said despite the current economic indicators raising concern, businesses that sought professional guidance when dealing with cost escalations and ATO debt would be best placed to recover.
“In the current high-cost environment, SMEs are understandably nervous about disruptions to their cash flow and supply chains, particularly those operating on thin margins,” he said.
“The good news is that unprecedented support and guidance is available to SMEs, starting with their brokers and key advisors.”
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“SMEs that sit down regularly with their brokers and make a plan for unforeseen events like the loss of a key client or supplier will be well-prepared to survive cash flow fluctuations.”
The report also found that 50 per cent of SMEs said they would suffer severe cash flow problems or face negative financial impacts that would last three months or more.
In addition to this, 4 per cent said they would need to shut down immediately and only 21 per cent said they were confident they would be unaffected.
Sutton said insolvency numbers from the past year were a ‘worrying story’ and recent data from Australia’s Corporate Insolvency Index painted a stark picture.
According to the data, 11,000 businesses went insolvent across the world in 2024, a 39 per cent increase from the previous year.
Court-ordered liquidations also saw a 99 per cent increase, director penalty notices rose by 50 per cent and the ATO issued close to 27,000 director penalty notices for $4.4 billion in outstanding payments.
Sutton said the benefits of sourcing professional help were now clearly documented, even for businesses placed into administration.
“Small business restructuring had emerged as a vital survival tool in recent years which enabled companies with liabilities under $1 million to maintain control of their business while collaborating with restructuring practitioners or creditor-approved turnaround plans,” he said.
“According to ASIC data, of 573 companies that formally entered restructuring after January and completed their plans by July 2024, an impressive 89 per cent remain registered.”
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