Most people wouldn't know.   That's not a criticism but a comment, because that information is not easy to find.   You'd also ask why does it matter?   Understanding the reasons why certain industries have 'bigger problems' may assist you in avoiding the common pitfalls, and to overcome finance difficulties.

The Top Five

The industries with the most liquidations are:

1. Building and construction

2. Accommodation and food services

3. Retailers

4. Transport and warehouses

5. Business services

(These were supplied by a specialist insolvency practitioner).

Building and construction

The problems of builders and subcontractors are well known, and usually well publicised.   What are the key business risks?

- They pay for services and supplies before they are paid by their client.   So if there is a dispute and the claim is unpaid or reduced, extra capital is required to continue funding the job or others.   This often means some contractors are paid in priority to others, or the more important jobs receive priority

- It is a very competitive industry, resulting in underquoting and lower margins in order to win work, so there may be little or no profit.   After retentions there may be no free capital to start a new job

- Because there is a high rate of failure, many are caught out by the failure of a major contractor, resulting in the failure of subcontractors and suppliers in turn

- Expansion can be too rapid, made worse if the builders have insufficient resources for growth

- Poor record keeping and financial management means problems may not be known about at an early stage

- QBCC monitors the industry and sets required liquidity ratios.

Accommodation and Food

Some of the key business risks in this industry are:

- High wages

- High rents or premises cost

- High vulnerability to   economic cycles, and changing trends and preferences

- Excessive competition and discounting

- High set-up costs, low worth after just a couple of years.

Retailers

Key risks are:

- High award rates and penalties

- High rents and set-up costs

- Lower cost of online products

- Digital disruption and falling physical attendances

- Vulnerable to economic cycles, changing consumer trends and preferences, over-shopping (too many centres and outlets)

- Overly competitive nature of the industry.

Transport

Always has been seen as high risk, including:

- Extremely competitive, so underquoting and low margins.   It can assist cash flow but means little profit.

- High overheads, especially fuel, wages and subcontractor costs, cost of premises

- Large capital investment and high interest on borrowings

- Poor financial management and record keeping.

Business Services

This includes all businesses providing services to either other businesses or customers.

It includes a wide range of businesses, so no single factor can be identified as a key risk.   However, their issues are similar to the other major industries above;   high wages, high cost of premises, changing cycles and trends, digital disruption and poor marketing practices, competition and discounting, and poor financial management.

Options and Solutions

You can see the key risks in each are broadly similar, so what could be done?

Before starting a business, prepare a plan and forecasts and allow for contingencies.   If you are already operating, prepare forecasts for at least a year based on scenarios like slow, good, and average.   Know your weekly breakeven, and what you have to do to obtain the results you want.

Financials and reporting are not just to pay the BAS and income tax.   Prepare often using a competent and knowledgeable bookkeeper, monitor regularly, and compare to forecasts and benchmarks.   If things don't feel right or there are signs of financial difficulty, please seek professional advice early.

Steps we would consider include:

- Consider the trends over time

- Compare to benchmarks

- Examine financial reports

- Prepare forecasts and KPI's

- Prepare a plan to turn things around, and the actions required

- Seek finance (if available)

- Improve reporting

- Regular monitoring and accountability.

If you have any questions, concerns or are struggling financially please call us.   Hopefully, the solution(s) may be simple and not costly, certainly a small cost when compared to financial failure.