One in 11 hospitality businesses across Australia are expected to fail in the next year, new data has revealed.
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The dire forecast comes as business owners struggle to pay invoices while consumers grapple with cost-of-living pressures.
The failure rate for hospitality businesses is expected to rise from 7.5 per cent to 9.1 per cent in the year ahead, CreditorWatch's latest business risk index shows.
Arts and recreation services was the next sector most at risk of failure, with the credit bureau expecting the failure rate to rise slightly to 5.7 per cent in the next 12 months.
The transport, postal and warehousing industry followed with a predicted 5.5 per cent failure rate for the year ahead.
CreditorWatch found the number of businesses across all sectors that were unable to pay invoices on time improved in the June quarter, however defaults have been trending up since mid-2021.
The company said there was a "strong correlation" between invoice defaults and the chance of a business failing in the following months.
Hospitality businesses also had a high rate of tax defaults, the data showed.
Food and beverage services had the highest instance of outstanding Tax Office debts above $100,000 at a rate of 1.7 per cent, followed by construction businesses at 1.2 per cent.
Hospitality 'a juggling act'
Food and beverage businesses have traditionally had higher rates of failure compared with other industries due to expensive running costs and reliance on discretionary spending.
As customers cut back on spending to cover mortgage and rental payments, bills and groceries, hospitality businesses are suffering.
But those costs are rising for businesses, too.
Trading has been "up and down" for Dimitri Yianoulakis who, with his family, runs Greek restaurant Olive at Hawker.
As prices of electricity, rent and produce rise, the business has no choice but to increase menu prices.
But you can only increase prices so much before you turn customers away, Mr Yianoulakis said.
"It's kind of a juggling act at the moment," he said.
"It is very, very difficult in the hospitality industry."
For BZ Burgers in Belconnen, business was stronger than ever off the back of some testing times, co-owner Paul Chapelli said.
"At the end of last year it was actually really bad. We were sort of tossing up throwing it away then," he said.
Now in its second year, the burger joint was supported by a strong customer base.
"Our reputation's taken off now and we're busier than we've ever been," Mr Chapelli said.
"We have a captive audience because we're in [an apartment] precinct," he said.
"So we tend to get a lot of return business from that."
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Mr Chapelli considered his business one of the lucky ones, and said others around him were suffering.
"People have just stopped spending in a lot of places where they don't need to, because of the financial constraint they're under now," he said.
Businesses worse off in Canberra's north
The data showed businesses - across all industries - located in Canberra's north have a higher risk of collapse than in the south.
The rate of business failure is expected to rise to 6.4 per cent in North Canberra in the coming year. The projected failure rate is 6.3 per cent in Gungahlin and 6.2 per cent in Belconnen.
Meanwhile businesses in South Canberra and Woden Valley are better off, with a projected rate of failure of 5.1 and 5 per cent respectively.
Regardless of the location, small businesses everywhere were doing it particularly tough, CreditorWatch CEO Patrick Coghlan said.
"It is small businesses that are hurting the most as they are more vulnerable to adverse economic conditions than larger businesses," he said.
"They operate on tighter margins and are less able to take measures to cut costs."