The latest edition of ScotPac’s bi-annual SME Growth Index Report revealed that a quarter of Australian SMEs could fall into insolvency risk if they suddenly lost just one key client or supplier.
The finding comes off the back of a year of surging business insolvencies driven by two main factors: escalating cost pressures and more assertive collection activities by the Australian Tax Office (ATO).
Recent data from Insolvency Australia’s Corporate Insolvency Index reported that in the most recent financial year, 11,000 businesses went insolvent nationwide in 2024, a 39 per cent jump from the previous year. In addition, court-ordered liquidations doubled at a 99 per cent increase.
The ATO is also pursuing around $35 billion in unpaid SME debt and, to date, has issued almost 27,000 Director Penalty Notices in FY2024 for $4.4 billion in outstanding payments, an increase of 50 per cent.
The report also took note of the varying levels of business vulnerability in the event of losing a key business partner, with half of all SMEs sayihg they would suffer severe cashflow problems or face negative financial impacts lasting three months or more, while four per cent of SMEs declared they would need to shut down immediately. Only 21 per cent felt secure enough in their business diversity to weather such a loss without financial damage.
ScotPac CEO Jon Sutton emphasised that while the current economic indicators raise concerns, businesses that seek professional guidance when dealing with cost escalations and ATO debt will 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,” Sutton said. “The good news is that unprecedented support and guidance is available to SMEs, starting with their brokers and key advisors.”
“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 cashflow fluctuations. Even for businesses placed into administration, the benefits of sourcing professional help are now clearly documented,” he added.
The report highlighted that small-business restructuring has emerged as a vital survival tool in recent years, enabling companies with liabilities under $1 million to maintain control of their business while collaborating with restructuring practitioners on creditor-approved turnaround plans. According to ASIC data, of 573 companies that formally entered restructuring after January 2021 and completed their plans by July 2024, an impressive 89 per cent remain registered.
