As 2025 draws to a close, one thing has been consistent across almost every business we’ve supported: pressure has been building, and it has become harder for SMEs to confidently navigate daily operations. Not only did these themes affect one sector or one size of business – they occurred everywhere.
Margin squeeze. Tightened cash flow. Lingering COVID-era arrears. A distinct lift in ATO debt recovered activity.
The year was determined by these pressures, but more importantly, they revealed structural flaws that had been concealed when the economy recovered from COVID.
What We Saw Across Our Client Work in 2025
Throughout the year, our assistance to SMEs revealed a few pressure points, which has been reflected in the broader data.
In the first three months of the 2025-26 financial year, 3,556 companies entered external administration. While this was slightly down on the same period last year, the overall shift is still increasing. Over the twelve months to 30 September 2025, 0.40% of registered companies entered external administration, compared to 0.36% the year prior.
Significantly, those were still below the highs we recorded in 2011-13 (0.56%) and 2012-13 (0.53%) and that context is vital. What we’re seeing is not a collapse, it’s a gradual tightening environment where weaknesses are being exposed earlier.
As part of this, several patterns were prominent.
- Margin squeeze became the operating reality. Businesses faced the inevitable rise of input costs, however they were still hesitant to adjust pricing. Eventually, this quietly eroded profitability and left them unable to handle new pressures.
- Across the board, cash flow was rigid. We noticed that revenue was steady, but liquidity wasn’t. There were slower customer payments, higher running costs and more expensive debt. That combination reduced flexibility and limited decision-making.
- Arrears post-COVID consistently appeared. Deferred tax, accumulated obligations and decisions made in 2020-2021 continued to play out. For many of our customers, 2025 was the year of real impact. Not during the crisis itself.
- The ATO returned to full enforcement. Gone were the days of leniency during COVID. Now, directors and owners were expected to act, communicate and plan early. The businesses that engaged proactively faced more benefits than most.
Across industries, the story was similar in shape, even if the details differed. During the first quarter of 2025-26, we found the most common industries facing external administration were:
- Construction: 24%
- Accommodation and food services: 16%
- Other service industries: 11%
- Professional, scientific and technical services: 7%
- Retail trade: 6%
This reflects what we witnessed firsthand.
Construction was stilted by cost blowouts and tight contracts. Healthcare operators were challenged by staffing costs. Transport struggled with the timing gap between high fuel expenses and delayed payments. While retail remained uneven: strong in some segments, fragile in others.
One thing stood out clearly to us: businesses weren’t under strain because their revenue collapsed. They were under strain because several pressure points hit at the same time.
What We Can Expect in 2026
Alongside these themes, we’ll see some structural changes in the next year. The first is the shift in superannuation payment timing, where many SMEs will find their cash flow tightening once they move from quarterly payments to aligning their super with payroll. Planning early is beneficial for the change to go smoothly.
The second is the continued “multi-speed” nature of the economy. Some sectors will rise while others may dwindle, where this imbalance will create both risks and opportunities. For businesses to be able to navigate this landscape with confidence, here are some areas worth prioritising:
- Strengthening risk strategy: Risk management should be regularly reviewed and linked with clear day-to-day decision-making. By ensuring this, action will be taken early, not late.
- Secure adequate funding lines: Given the state of global uncertainty, negotiating when cash is tight is never ideal. Start conversations early and maintain room to move.
- Boost financial visibility. Having clear KPI’s, cash flow forecasts, and timely month-end reporting are no longer merely “nice to have” features. They are a vital framework for a business. Without visibility, it is difficult to take action promptly.
It wasn’t the businesses with perfect numbers that were able to protect their position. They were the ones who sought clarity early, understood their options and made informed choices.
We’re grateful to our team, our clients and our partners for the trust and collaboration that made this work possible.
As we move into 2026, our focus remains steady: to help owners understand where they stand, strengthen their position and regain control of their path forward.
If you feel these pressures may affect your business in the new year, AS Advisory is ready to help you map the first steps with clarity and confidence.
Book a clarity call with us today https://calendly.com/andrew-asadvisory