How do you break the cycle and survive? Updated for 2025
Over the past 18 months, Worrells has experienced an increase in liquidations in the Australian transport industry. Why?
We attribute this to cut pricing, high competition, the mining downturn, and poor planning and management. However, the landscape in 2025 presents additional challenges and opportunities.
Common scenario
In practice, the scenario we are seeing on a regular basis is as follows:
Asset financing
A business has a handful of trucks, trailers, and associated equipment. All assets are under finance. The current market value of the assets is relatively low and there is no equity; in fact, it is not uncommon to see a substantial shortfall on a truck.Loss of key clients
Often, a business loses a key client (representing over 50% of their income stream) or a key client fails to pay their outstanding debt (e.g., due to liquidation or bankruptcy).Desperate hunt for work
Given the decreasing sales and cash flow, the business is desperately hunting for new work. The shrinking market and oversupply of transport businesses exacerbate this issue.Unprofitable contracts
The business takes on work under market rate to win contracts, even though it is unprofitable in the long-term, leading to increased losses and further strain on cash flow.Ongoing finance payments
While this is all going on, the business needs to keep making their finance payments on the equipment. A sale of surplus equipment may lead to further cash flow issues if a shortfall on the sale occurs.
Unless this cycle is somehow broken, the result is:
Vehicle maintenance and repairs do not occur (unsafe vehicles on the roads).
Employee entitlements such as superannuation irregularly get paid.
ATO taxes and PAYG withholding amounts are often not paid.
A creditor (usually the ATO or a finance company) pushes the business into liquidation.
Breaking the cycle
The reality is many businesses are being operated almost solely on the funding of not paying employees' fair entitlements or obligations to the ATO, hoping business will improve and be in a position to start paying off all the debt incurred while working for peanuts.
Unfortunately, we can't see anything changing for the highly competitive transport industry any time soon. If businesses seek advice from their advisors, there may be options available to 'break' the cycle. These can include:
Diversifying the business
Implementing a strategy that relies less on one or two key customers.Increased debtor collection strategy
Ensuring timely collection of receivables to improve cash flow.Controlled sell down of equipment
Selling surplus equipment in a controlled manner to reduce cash-flow problems as opposed to selling at an inopportune time when cash is desperately needed.Factoring options
Consider factoring finance options to increase short-term cash flow.Refinancing options
Exploring refinancing options to manage debt more effectively.Reduction of surplus resources
Including staffing reductions where necessary. Too often small businesses will retain excess staff to keep everyone happy but that can lead to significant financial challenges for the business in the future.Technological advancements
Adopting AI and other technologies to operate more efficiently and cost-effectively (driver routes, logistics, etc).Small business restructuring
Utilising the Small Business Restructuring (SBR) process to reorganise and manage debts more effectively.
If the position is quite serious, a discussion with an insolvency practitioner may present a range of options in addition to Small Business Restructuring including Voluntary Administration or if appropriate Liquidation.
None of this can occur if the business doesn't seek assistance from their advisors, and consequently, the cycle will continue.
By taking proactive steps and seeking professional advice, transport businesses can navigate the challenging landscape of 2025 and find pathways to sustainability and growth.
