Small businesses, especially those operating for fewer than six years with a turnover below $10 million, are becoming increasingly vulnerable to failure risk, according to illion’s latest Commercial Risk Barometer.
While overall business conditions improved slightly in the June 2025 quarter, driven by gains in April and May, conditions softened in June. By quarter’s end, the number of businesses at moderate or higher risk of failure had risen 4.5% – growing 50% faster than the 2.9% increase in actively trading businesses over the past nine months.
The data, based on analysis of more than 2.5 million active businesses, shows the pressures are most pronounced among the smallest and youngest operators. Around 8% of micro-businesses (turnover under $500,000) trading for fewer than six years are at very high risk of failure in the next 12 months – four times the rate of more established peers.
This comes as broader indicators show gradual improvement, with NAB’s August survey highlighting stronger profitability, trading and employment. Westpac, however, flagged weak investment, softer confidence after July’s peak, and inflation surprising at 2.9%, raising “some upside risk” to September quarter CPI.
Industry performance remains mixed, with some sectors showing resilience while others struggle.
Financial services rebounded in the June quarter, with a 1.8% improvement in risk, supported by rising credit demand and growth in life insurance services
Mining remained stable, particularly in mining services and resource extraction, though metal ore export growth has slowed
Transport showed contrasting trends: insolvencies rose 15% and trade payments slowed by 10% due to weaker parcel delivery demand, while rail and road freight activity surged by about 20% on agricultural demand
Hospitality, retail, and construction saw renewed stress. Insolvencies rose 15% in Hospitality, 36% in Retail and 13% in Construction. New business formation also slowed, with hospitality incorporations down 25% and Construction down 10%
Manufacturing and wholesale are experiencing pockets of weakness, particularly for businesses tied to construction supply chains, where growth was 30% lower than other industries
Health services are split: core services such as hospitals, pharmaceuticals and residential care continue to grow strongly, but allied health services including physiotherapy, optometry and pathology are expanding more slowly as households tighten budgets
Barrett Hasseldine (pictured), head of modelling at illion, said the data highlights an economy shifting under cost and demand pressures.
“After a strong run, we’re now seeing business conditions diverge,” Hasseldine said. “Some industries are maintaining momentum, but others, particularly the smaller and younger operators, are beginning to feel the pinch. The next few months will be important to watch as global trade settings, consumer sentiment, and cost pressures evolve.”
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