The increase in company collapses, and the impact of the cost of living crisis have sparked serious concerns among experts. From major construction giants like Porter Davis to smaller startups like Milkrun and even luxury fashion retailers like Alice McCall, many sectors are grappling with significant challenges and the risk of failure. An analysis by NAB (National Australia Bank) reveals a worrying trend, with a substantial 30% rise in business failures recorded in 2022 following a slowdown during the COVID-19 pandemic. Experts caution that the situation may worsen as economic difficulties intensify, placing immense pressure on Australian consumers and enterprises.
Insolvency experts propose that the current upswing in failures may not necessarily be detrimental to the Australian economy. According to Bradd Morelli, managing partner at insolvency firm Jirsch Sutherland, the surge in bankruptcies can be viewed as a process of eliminating weaker entities. Morelli highlights the presence of “zombie companies” that should have undergone restructuring or closure two years ago but were allowed to continue without sufficient pressure. With increased scrutiny from the Australian Taxation Office, these businesses face the consequences. Morelli explains that the current slight downturn serves to weed out unproductive companies and those on the margins, creating space for more robust enterprises to emerge.
Nevertheless, the insolvency landscape is evolving, with the cost of living crisis presenting significant challenges. Experts predict that successful businesses will face trials, and some may fail by the end of the year, resulting in another surge in collapses. Factors such as rising interest rates, inflation, and supply chain issues are beginning to affect consumer behaviour, reducing discretionary spending. Consequently, sectors like hospitality and retail are particularly vulnerable to these changes. CEO Paul Zahra of the Australian Retail Association (ARA) points out that the current economic environment is placing pressure on the retail sector, causing a slowdown in discretionary spending as consumers prioritise saving. Companies are compelled to cut costs in challenging times, and not all will survive.
The increasing collapses, which remove weaker entities and reallocate resources to more robust ventures, present challenges for successful companies. The collision between the cost of living and the cost of doing business necessitates careful financial monitoring, necessary adjustments, and the development of sustainable models. Businesses must adapt and navigate the turbulent times to ensure their survival and contribute to a resilient and robust Australian economy. If you have further questions, please contact our friendly team at support@walkerhill.com.au.
