Inflationary pressures, rising interest rates, extensive flooding, labour shortages and supply chain disruptions are just some of the extenuating factors that have contributed to a highly unusual and irregular trading environment for many businesses this year and last. As a result, businesses including commercial real estate agencies need to take a forensic look at not only their own operations but the financial health of those with whom they do business.

The impact of lockdowns on businesses led to an injection of government stimuli, mortgage holidays from bank lenders and temporary moratoriums on insolvent trading through 2020 and 2021. But with these measures lifting during the last 12 months, many businesses have started to feel the full impact – and while insolvencies are tipped to rise across the board, property firms will be among those most affected.

Construction woes

Several large construction companies for instance have already collapsed this year including Probuild, one of the country’s major operators. This was followed by the nation’s largest home builder, Metricon, being forced to hold talks with clients and banks over its financial viability. Despite the Gold Coast holding the status as one of the country’s fastest growing regions, large construction firm Condev recently went under as did Hotondo Homes in Hobart and, in Perth, Home Innovation Builders and New Sensation Homes. Last year the high-rise builder ABD Group went into liquidation, as well as Queensland outfit Privium Homes which impacted more than 2,000 home buyers and left creditors owed close to $43 million.

According to credit reporting agency, CreditorWatch, the construction sector has the worst late payment record of any industry with one in 10 builders more than 60 days in arrears on their payments to suppliers.  In April, co-founder of The Association of Professional Builders Russ Stephens said he believed about 50% of Australian building companies were trading whilst insolvent. 

This is why commercial real estate agencies (as well as other business owners) should be doubling down on checking their financial health this EOFY said Patrick Coghlan, CEO of credit reporting agency CreditorWatch. Mr Coghlan warned commercial real estate agents should be on watch for any clients in hospitality, arts and recreation and transport, postal and warehousing as these were the most likely industries to default on payments.

“Australian business owners have been fielding curveballs consistently over the last 24 months,” Mr Coghlan said. “So the end of the financial year is the perfect time to pause and take stock. It’s vital that small business owners use this time to analyse their business, identify opportunities or improvements, and make a strong plan for the year ahead.”

Take action

James Flaherty, a convenor at insolvency firm Insolve, said businesses need to act now to ensure they are adequately protecting themselves from suppliers or partners who may be at risk of collapse.

“Particularly in areas such as construction where the industry is experiencing a period of extreme volatility it’s crucial that businesses understand exactly who they’re trading with and the stability of those partners,” Mr Flaherty said. “While construction issues have been well documented, it’s far from the only sector at risk.”

Business owners are being urged to engage with the Australian Tax Office to tailor payment solutions, rather than stick their head in the sand over tax debts. “It is vital companies take heed of the advice issued by the ATO and other expert advisors in the taxation space,” said Korda Mentha executive Craig Shepard, a leading expert in business restructuring. “There is a way through. Solutions can be tailored to suit various circumstances but only when taxpayers realise the critical nature of engaging with those who can help.
“Where they do not engage, insolvency action is a very real possibility. The ATO is already on the front foot – the office recently wrote to those businesses with significant tax obligations outstanding who have not responded to calls and letters. So far, 29,552 awareness letters for disclosure of business tax debts and 52,319 awareness letters about the use of Director Penalty Notices have found their way to businesses and directors.”

EOFY checklist

To ensure businesses do not miss key pitfalls and loose ends that could lead to major problems down the track CreditorWatch has created an End Of Financial Year Survival Guide in the form of key questions to answer and preventative steps to take before June 30.

  • Are your supplier contracts up to date?
  • Is your supplier database all up to date?
  • Have you been through the Know Your Customer (KYC) process?
  • Do you have alerts set up to keep up to date on your customer's activity?
  • Are you keeping an eye on your customer payment times compared to the market average? 
  • Are you ensuring you’re paying all of your customers on time?
  • Have you taken out a Personal Properties Security Register (PPSR)?
  • Are your customers paying you later than other suppliers? 
  • What is the average repayment time in your industry? 

For more information see CreditorWatch & KordaMentha