Small Australian businesses – particularly those that have been trading for less than six years – may be particularly vulnerable to insolvency in the months ahead, according to illion’s recent Commercial Risk Barometer.
Despite business failure risk gradually improving during the 2024-2025 financial year, the latest available data from June has seen the return of higher-risk conditions.
The number of businesses actively trading increased by around 2.9 percent in the nine months to June, while the number of businesses at heightened risk of failure outpaced this, rising to 4.5 percent.
According to the data, eight percent of micro businesses – those with less than $500K turnover – that have been trading for fewer than six years are at very high risk of failing in the next 12 months, which is around four times higher than more established micro businesses.
Elsewhere, between five to six percent of younger, small businesses – those with turnovers not exceeding $10 million – are also at very high risk of failure this financial year, which is around three times higher than their more established counterparts.
The second quarter of 2025 saw tougher trading conditions returning to traditionally higher-risk industries, with the hospitality sector suffering a 15 percent rise in insolvencies and a 25 percent lower growth rate in new business incorporations, compared to other industries.
The construction, retail and transport sectors also suffered, with average to below-average increases in new businesses and substantially rising insolvencies – 13 percent higher in construction, 36 percent higher in retail and 15 percent higher in transport, respectively.
While considered lower risk, the manufacturing and wholesale sectors appear to be affected by slower retail and food consumption, notes illion, while the health services sector is showing generally high growth but also higher insolvencies in certain areas.
Overdue invoice payments are becoming more common in some industries, indicating growing financial strain, with the healthcare and transport sectors particularly affected.
In the health services sector, invoices were paid 14 percent later in June 2025, compared to six months earlier, while the transport and manufacturing sectors saw invoices paid 10 percent and six percent later, respectively.
Commenting on the findings, Barrett Hasseldine, Head of Modelling at illion, said the data is reflective of a market in transition.
“After a strong run, we’re now seeing business conditions diverge. Some industries are maintaining momentum, but others, particularly the smaller and younger operators, are beginning to feel the pinch,” he said.
“The next few months will be important to watch as global trade settings, consumer sentiment and cost pressures evolve.”
This begs the question, what can you do to help your critical small suppliers in the potentially tough months ahead?
The Commercial Risk Barometer tracks the risk of Australian businesses being unable to trade within the next 12 months, with money owing and being forced into closure – this includes businesses entering liquidation and/or being involuntarily deregistered.
