Breaking Into the Defence Industry

South Australia is emerging as a key hub for the defence industry, with several major initiatives underway, including AUKUS Submarine Program and the Hunter Class Frigate Program. These landmark projects open doors for SMEs to enter global supply chains and play a key role in shaping the future of defence manufacturing and technology. However, such opportunities can also bring complexity, particularly on the financial front. Ensuring your accounting practices are robust and accurate can help you sidestep costly mistakes, improve your competitiveness and ensure you are compliant under both Australian and international regulations. Here are five key factors to help you prepare your business for the defence sector.

1. Understanding all the costs

There are more costs involved than the amount listed on the invoice when entering global supply chains. On top of the purchase price, you’ll likely encounter additional expenses such as customs duties, import taxes, freight, insurance, currency exchange, compliance costs, storage and handling. Careful budgeting is crucial to account for all associated costs in your pricing, helping to protect your profit margins, avoid unexpected financial pressure and remain competitive in the market.

2. Manage financial risks strategically

Global operations can be particularly challenging for SMEs, exposing you to financial risks like currency volatility, custom delays or supplier defaults. For example, as we know, the Australian dollar can fluctuate rapidly, which can significantly impact the cost of materials and the value of international payments. Identifying these risks early and implementing mitigation strategies is key to operational stability and protecting cash flow. Approaches may include hedging against currency movements, conducting supplier credit checks, and offering or negotiating better terms to support consistent cash flow.

3. Ensure compliant financial reporting

The defence industry is highly regulated, making compliance a non-negotiable for SMEs. This means maintaining accurate and transparent financial records that meet export control requirements and support detailed cost reporting, especially if you are working as a subcontractor. At the same time, GST must be applied properly to imports and exports and you claim the right input tax credits. Having a reliable accounting system that captures all of this can simplify audits and support government reviews, helping you avoid costly penalties and maintain contract continuity.

4. Plan for longer payment cycles

Cash flow is the lifeblood of SMEs, yet participating in global supply chains often involves longer payment terms or upfront supplier costs that can strain cash flow and disrupt day-to-day operations. To navigate these challenges, SMEs need strong cash flow forecasting and effective working capital management. Using tools such as supply chain finance, invoice factoring and optimised inventory management, can help keep your business running smoothly, even when payments take longer.

5. Focus on quoting for defence jobs

One area that many SMEs often struggle with is getting their quoting right, especially when working in global supply chains. Staying competitive and profitable requires more than adding a markup to your costs, it also involves accounting for all costs, direct and indirect and building in contingences for delays, currency fluctuations, regulatory compliance and specific payment terms. Using past data and running “what if” scenarios, such as the best case, worse case and most likely scenarios, can help refine quotes, ensuring competitiveness while reducing the risk of unexpected financial surprises.

Navigating the complexities of global defence supply chains as an SME demands careful financial planning and strategic management. If your business is looking to take on the opportunities in the defence sector, reach out to your local William Buck advisor for expert guidance and support.