Six challenges facing Australian SMEs before FY25

As the 2024 fiscal year progresses, Australian enterprises are preparing for formidable economic trials amid escalating concerns of a potential recession triggered by ongoing increases in interest rates, heightened labour costs, and reduced tax incentives. 

While the SME sector appears particularly susceptible during these uncertain times, many are demonstrating resilience and a readiness to adapt. Alon Rajic, the founder and CEO of Small Business Loans Australia, a platform for comparing business loans, has conducted comprehensive research to uncover six challenges that SMEs are likely to confront this fiscal year.

While Alon encourages SMEs to recognize the obstacles ahead, he champions the pursuit of emerging opportunities. He remarks, “An increasingly demanding and costly labor market, escalating rates, more stringent borrowing prerequisites, inflation, and persistent supply chain issues present a somber outlook for the business landscape. Business proprietors must remain diligently informed about accessible resources, shifts in governmental policies, and other prospects that can help alleviate these challenges and secure the enduring success of their ventures.”

According to Alon, the need for vigilance and adaptability has never been more critical. “To navigate the impending uncertainties, SMEs must remain alert to early indicators of economic shifts and explore innovative strategies to tackle challenges while uncovering untapped possibilities that could pave the way for their success in the years ahead.”

Outlined below are six challenges that SMEs should anticipate prior to FY25:

1. 68% of SMEs Struggle to Fill Job Openings: Job vacancies in Australia continue to remain at unprecedented levels since the GFC, with research indicating that 68% of businesses are grappling to identify suitable staff. The impact is particularly pronounced among micro-businesses, where nearly 80% are unable to fill vacant positions. Disparities emerge across sectors, with 90% of job vacancies situated within the private industry.[1] While the health and technology sectors exhibit some improvement, the hospitality, manufacturing, and agricultural domains persist in encountering significant hindrances, with potential incapacity to fill vacant roles reaching up to 100%. (Read the full study: https://smallbusinessloansaustralia.com/sme-employees-2023/).
2. Impaired Cash Flow Due to Delayed Payments and Stricter Lending: As economic conditions deteriorate, numerous SMEs may become reliant on business loans as their cash flow wanes. Among the challenges anticipated in recent research, 30% of SMEs foresee difficulties in collecting payments from customers, while 26% anticipate challenges in generating sales. While the increase in loan values extended to SMEs may appear promising, data reveals a concerning number of SMEs lack any financial lifeline, and 50% face formidable barriers when attempting to secure bank loans. (Read the full study: https://smallbusinessloansaustralia.com/is-australia-doing-enough-to-improve-access-to-capital/.)
3. Elevated Labor Costs Impacting Small and Large Enterprises: In the current fiscal year, employers are confronted with elevated labor costs regardless of their chosen approach, potentially influencing growth plans for certain small businesses. Since July, companies have been subjected to an elevated 11% superannuation rate and a higher minimum wage of $23.23 per hour. Moreover, those seeking to sponsor migrants will incur higher expenses, with the base salary for sponsored employees rising to a minimum of $70,000 per year, up from $53,900.
4. 50% of SMEs Focus on Growth Despite Recession Concerns: Despite a series of unprecedented challenges such as bushfires, floods, lockdowns, inflation, labor shortages, and interest rate hikes, Australian businesses have persevered. Notably, Small Business Loans Australia’s research reveals that nearly half (48%) of SMEs are expanding this year, even while acknowledging the looming risk of a recession. This represents more than double the proportion (22%) of respondents who prioritized growth in 2022. (Read the full study: https://smallbusinessloansaustralia.com/growth-in-recession/.)
5. Escalating Interest Rates and Banking Charges Drive Fintech Adoption: Escalating interest rates and banking fees may motivate businesses and individuals to transition to alternative fintech solutions. A survey commissioned by Money Transfer Comparison highlights that 80% of Australians perceive their banks’ fees as unreasonably high, and 66% are open to adopting innovative fintech services featuring competitive charges. This presents an opportunity for SMEs to not only benefit from potentially lower fees but also embrace digital innovations such as international transfers, digital credit cards, Buy Now Pay Later (BNPL) options, expense tracking, rewards programs, and cashback services. (Read the full study: https://moneytransfercomparison.com/leaving-banks-fintech/.)
6. Restricted Asset Write-off Rules Favor Small Businesses: The current fiscal year witnesses new rules for asset write-offs benefiting exclusively small businesses. From October 6, 2020, to June 30, 2023, businesses with earnings of up to $5 billion could immediately write off eligible capital assets without financial limitations. The tax regulations now specify that businesses with turnovers below $10 million can write off up to $20,000 per asset. Small businesses with annual turnovers below $10 million can swiftly deduct eligible assets valued under $20,000, provided they were utilized or installed before July 1, 2024.

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