Australia's corporate insolvency rates are still running high, and one Gold Coast liquidator warns that small businesses are facing a fresh challenge: the hefty cost of adopting artificial intelligence technology.
GT Advisory & Consulting says the usual strains remain. It lists weak consumer sentiment, high operating costs, tight margins and ATO debt recovery activity. Against that backdrop, it says the fast uptake of generative AI is adding operational and restructuring risks for some small and medium businesses.
Glenn O'Kearney, a registered liquidator and Principal at GT Advisory & Consulting, says the problem isn't the technology. It's how quickly a business under pressure changes its cost base and the way it operates.
"When margins get squeezed, businesses naturally start looking at their cost base, and AI is increasingly part of that conversation," he said.
Cutting too fast
O'Kearney's main warning is about assuming AI is a cheaper replacement for staff. "The mistake is assuming technology is simply a cheaper replacement for people; redundancies cost cash, systems take time and money to implement, and if you cut too quickly you can lose knowledge or service capacity before the technology is actually delivering the savings."
Costs that arrive first
GT Advisory points to several costs that can land before any savings do. Cutting headcount can bring redundancy and other termination entitlements, where they apply, as well as accrued leave and related payroll obligations. For a business short on working capital, the firm says those amounts can be significant. Getting final pay and entitlements right matters too, with Fair Work stepping up its compliance checks.
Software, licensing, integration and implementation costs can also outpace early efficiency gains, GT Advisory says. If the technology doesn't perform as expected after a business has already cut staff, it can end up paying twice. The firm adds that downsizing customer-facing or operational teams too early can mean lost clients before the systems are properly in place.
Some sectors feel it sooner
GT Advisory says some industries are exposed more directly. It points to parts of the design, marketing and professional services markets, where customers are using lower-cost AI tools for work they once outsourced.
O'Kearney is clear about where the risk sits. "AI isn't, by itself, causing businesses to become insolvent. What it can do is accelerate problems that are already there," he said.
"If a business is already short on working capital, a drop in customer demand, the cost of restructuring its workforce or a technology implementation that does not deliver the expected savings can be enough to turn a difficult trading position into a formal insolvency situation."
Act before cash runs out
For directors who are already under pressure, GT Advisory says the options depend on the situation. They can include an informal restructure, Small Business Restructuring where the eligibility requirements are met, voluntary administration, or liquidation where the business is no longer viable.
Timing matters most, O'Kearney says. "The earlier directors deal with financial pressure, the more options they generally have. Once the cash is gone, the ability to restructure the business or preserve value becomes much more limited."