I recently revisited the Reserve Bank of Australia’s April 2025 Financial Stability Review. It is a valuable read for people that operate a small business, and are thinking about current and future strategy, risk mitigation, business viability or exit strategy. The paper is a catalyst to provoke thinking. The paper is evidence-based and authored by economists. It is highly recommended and well worth the time.
This RBA Focus Topic examines:
- the characteristics of companies, particularly small businesses, that have recently become insolvent;
- the causes behind the rise in insolvencies; and
- the broader implications for financial stability in the Australian economy.
Insolvencies have been highest in construction and hospitality, reflecting the interaction of industry specific factors and economic conditions. Construction insolvencies increased sharply in 2023 due to supply-side challenges, including high input costs, delays arising from labour and materials shortages, and the prevalence of fixed-price contracts.
Insolvencies have also risen sharply in industries exposed to discretionary spending, notably hospitality. In 2024, poor economic conditions were the most cited reason for failure among hospitality operators entering insolvency. These businesses are especially vulnerable to changes in demand, as they typically operate with slimmer profit margins and limited cash buffers.
Take-outs. The report covers the pandemic period, the post-pandemic period, and the transition from bank to non-bank lending for working capital.
As always, for small businesses large and small in financial or non-financial distress, call David Levi on 0418 602 466 for a confidential, no-obligation discussion about your options.
Comments are closed.