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FY25: 8 Key considerations and support options for SMEs

As economic growth is projected to remain sluggish through the end of 2024, small-to-medium enterprises (SMEs) are bracing for a challenging financial year ahead.

With interest rates stuck at a high 4.3%, businesses face the dilemma of absorbing increased operational costs or passing them onto consumers who are already curbing their spending. Household consumption has plummeted by 5.5% since early 2022, and the landscape is further complicated by high job mobility, a surge in cyberattacks, and escalating demands for sustainable operations.

Alon Rajic, Founder of Small Business Loans Australia, conducted in-depth research to pinpoint the top challenges SMEs will face in FY25 and how consumer behaviors might exacerbate these issues. Despite the tough outlook, Rajic emphasizes that there are numerous support measures and solutions available to help businesses navigate these turbulent times.

“Small businesses make up over 95% of the Australian business sector and are crucial to our economy. It’s imperative for business owners to scrutinize their operations, manage costs efficiently, and safeguard against cyber threats and environmental responsibilities. Leveraging available support from government and private financial providers will be key,” Rajic advises.

Here are the top eight challenges identified for SMEs in FY25 and suggested strategies to mitigate them:

Financial Pressures

  1. Challenge: High inflation, interest rates, and wage increases have squeezed profit margins, with 43% of small businesses failing to turn a profit last year, and 75% of owners earning below the average wage.
  2. Solution: Utilize the $641.4 million allocated in the 2024/2025 Federal Budget for small business support, including energy bill rebates, improved cash flow measures, and extensions to the instant asset write-off.

Increasing Cyber-Attacks

  1. Challenge: Data breaches rose by 19% in the latter half of 2023, with cybercrimes costing businesses significantly more each year.
  2. Solution: Invest in updated software, cybersecurity insurance, and employee training on security protocols. Implement multi-factor authentication and regular data backups. Financial support is available through the Small Business Cyber Resilience Service Program.

Reduced Investment in Business Assets

  1. Challenge: With interest rates high, 90% of businesses are cautious about borrowing, and 69% are delaying investments.
  2. Solution: Take advantage of the Federal Government’s instant asset write-off and small business energy incentives to mitigate costs and encourage investment.

High Job Mobility

  1. Challenge: Job mobility is at its highest in a decade, making it hard for employers to retain staff.
  2. Solution: Offer flexible working conditions, social incentives, and novated leases, which allow employees to buy cars with pre-tax dollars, reducing costs for both parties.

Decreased Consumer Spending

  1. Challenge: Consumer spending on discretionary items has dropped significantly, with household consumption recovery delayed until late 2024.
  2. Solution: Implement loyalty programs, streamline operations to cut costs, and prepare for the eventual market recovery.

Rising Cost of Car Ownership

  1. Challenge: Increasing petrol prices and maintenance costs, along with long wait times for new cars, are burdening business operations.
  2. Solution: Consider electric vehicles, which offer lower running costs. For example, the 2019 Hyundai Ioniq EV has an annual fuel cost of just $491.

Sustainability Pressures

  1. Challenge: The impending climate reporting regulations mandate businesses to decarbonize and report their sustainability efforts.
  2. Solution: Start using carbon-tracking tools now to develop and implement effective reduction strategies.

Hidden Costs of Overseas Purchases

  1. Challenge: International purchases using credit cards incur high fees, eroding the cost benefits.
  2. Solution: Explore specialized money transfer services like Currencies Direct, TorFX, and Moneycorp to reduce transaction costs.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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