02 August 2024
The Australian Securities and Investments Commission (ASIC) recently released its annual insolvency data, revealing a significant rise in the number of companies entering external administration.
The report, published on 25 July 2024, shows that over 11,000 companies faced this fate in the 2023/24 financial year, marking a significant increase on the prior year.
Key Insights from the ASIC Report:
Rising Insolvencies: The 11,000 companies entering external administration in 2023-24 represent a 39% increase compared to the previous year.
Industry Breakdown: The construction industry was the hardest hit, accounting for 27% of all external administrations. Accommodation and food services followed at 15%. These industries have taken the brunt of inflationary pressures and rising interest rates.
Restructuring Trends: There was a dramatic rise in restructuring appointments, which grew by over 200% in 2023/24. Restructuring now represents 12.9% of all external administrations and small business restructuring has become a vital lifeline for companies to develop a restructuring plan with the help of a practitioner while retaining control of their operations.
Success Rates of Restructuring Plans: Since the introduction of the small business restructuring process in January 2021, 573 companies had completed their restructuring plans by 30 June 2024. 89.4% of these companies remain registered, highlighting the effectiveness of this approach in salvaging struggling businesses.
The Importance of Financial Vigilance:
The surge in insolvencies underscores the critical importance of maintaining a keen eye on your business’s financial health.
Here are some key takeaways for business owners:
Regular Financial Monitoring: Regularly review your financials and cash flow to identify and address issues before they become critical. Enlist the help of a professional to help you understand your financials and to make good data driven business decisions.
Cost Management: Keep a close watch on expenses and ensure that your spending aligns with your revenue and that you have appropriate margins. Also, pay attention to the timing of expenditure versus receipt of income.
Debt Management: Manage your debts proactively to ensure that they support good cashflow. Look at finance options to ensure that you have access to appropriate levels of working capital and are paying a competitive interest rate.
Seek Professional Advice: Don’t hesitate to seek advice from financial advisors or restructuring practitioners. Professional guidance can provide you with strategies to navigate financial difficulties and improve your business’s resilience.
ASIC’s annual insolvency statistics serve as a stark reminder of the challenges that businesses face and the importance of proactive financial management.
Particularly in a week that has seen prominent businesses like Carl’s Jr and Rex Airlines appointing external administrators.
By staying vigilant and taking proactive steps, business owners can better navigate financial turbulence and increase their chances of long-term success.
If you need help to improve the financial management of your business, please get in touch.
Sky Accountants Ballarat
Phone: 03 5332 8855
Office Address: 902 Howitt Street, Wendouree, Victoria 3355, Australia
Postal Address: PO Box 2234, Bakery Hill, Victoria 3354
Sky Accountants Gisborne & Macedon Ranges
Phone: 03 5428 1400
Office Address: 45 Hamilton Street, Gisborne, Victoria 3437, Australia
Postal Address: PO Box 270 Gisborne Victoria 3437