South-west Queensland and Sydney's western suburbs were the riskiest places to set up shop while large regional cities were some of the safest places to open a new venture.

CreditorWatch chief economist Anneke Thompson said the company plugged an array of variables into its algorithm to produce a "geographic risk index" for 332 regions across Australia.

The index runs from zero to 100, with zero for the riskiest area and 100 for the safest.

"Then based on that index number the model predicts what percentage of businesses in that area are likely to default over the next 12 months," Ms Thompson said.

In areas such as Guildford in western Sydney - risk index 0.0 - the model predicted nearly eight per cent of businesses would fold inside a year, while in the Gold Coast and Brisbane's Sunnybank the figure was well over seven per cent.

Ms Thompson said there were a few similar factors the riskiest areas all shared including a young population, a large proportion of new businesses and high commercial rents.

"If you look at those riskier areas - and it's always dominated by western Sydney and south-east Queensland - they have a very young population and a high proportion of businesses that have been in operation only a few years, so have higher debt levels," she said.

"Those businesses will also have smaller cash reserves and that younger population is often a less loyal customer base, which means cash flow can be a problem."

CreditorWatch also provides data showing whether each area was becoming more or less risky for businesses.

Ms Thompson said at the moment basically everywhere was becoming more risky.

"Effectively everyone's run out of cash reserves, so in the current environment, cash flow is everything. Two years ago it wasn't as crucial because savings rates were so huge," she said.

"We all hoarded cash during COVID, so it didn't matter if your cash flow was a bit lumpy. Trade defaults were really low, businesses weren't getting too stressed if someone was paying them late."

That has all changed, Ms Thompson said, with a record number of businesses calling in debts from other businesses last month.

"You need your bills or invoices paid, and if you have customers that are paying you late or just, you know, not buying your product or service anymore that's having a massive impact," she said.

"Interest rates are one thing, but also just the cost of everything, so if you're a cafe or restaurant not only has the interest rate you're paying on your loan, if you have one, gone up, but the cost of your food's gone up, the cost of your gas and electricity have gone up, the cost of your labour has gone up, everything has gone up."

The safest areas to set up shop also shared some common themes such as a high number of well-established businesses, and an older, more stable population.

"You find the least risky areas are usually outer ring suburbs and the bigger regional centres," Ms Thompson said.

"They have an older population with less debt and more long-term businesses with very loyal customer bases."

Among areas with at least 5000 businesses, Ballarat in western Victoria was the safest place to run a business, followed by the inner Adelaide suburb of Norwood.

Ms Thompson said the debt level - and particularly the housing status - of your customer base was often crucial.

"We know 33 per cent of the population own their home outright, so they don't rent or have a mortgage, which means they're unaffected by interest rates and their discretionary spend doesn't change much," she said.

"So if your customer base is dominated by those sorts of people you're in a much better position as a business because your cash flow will be steadier.

"So, in a perfect world you would want to have baby boomers as your customers is what I'm trying to say."

As interest rates have risen, rental rates have started to bite a lot of businesses, Ms Thompson said.

"That's where you'll see places like central Sydney and also the Brisbane CBD as hotspots for business closures recently," she said.

"People question that and bring up Melbourne - you know Brisbane had far fewer lockdowns and more people working in the city - but on a relative basis Brisbane's rents are higher than Melbourne's and that had an outsized impact."

Ms Thompson said the cost of living crisis was squeezing hospitality, which was "always a risky business model", but professional services like lawyers and accountants were also feeling the pinch.

"If you're an accountant in Prahran [in inner Melbourne] you might see a lot of your customers from last year trying to do their tax return themselves this year, just to save some money," she said.

"That's just a younger a younger demographic. They're spending more on rent. If they own their house they're spending more on their interest repayments."