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Small businesses bullish on 2023

Amidst economic uncertainty and concerns of a possible recession, small to medium enterprises (SMEs) in Australia are defying the odds by expressing a positive outlook towards their future growth and profitability. 

According to a report, a staggering 70 per cent of small businesses are optimistic about their revenue prospects in the upcoming year of 2023.

The annual SME Compass Report by fintech SME lender Banjo Loans highlights the resilience and adaptability of SMEs in Australia who have navigated the challenges posed by the current economic climate.

Small businesses bullish on 2023

Despite the ongoing pressures and uncertainties, small businesses across the country are showing remarkable determination and perseverance, with the report indicating a sustained trend of revenue growth.

Health and wellness spending fuels optimism

The report also highlights an interesting trend among small businesses in the fitness, trades and services, and healthcare sectors. 

These businesses are reportedly the most confident and optimistic about their prospects, and the report attributes this to continued consumer spending on health, wellness, and home-related products and services.

With more people spending time at home due to the pandemic, the demand for health and wellness products and services has increased.

This has increased demand for fitness equipment, online workout programs, and other related services. Similarly, with people spending more time at home, the demand for home-related services such as plumbing, electrical repairs, and home maintenance has also increased.

The healthcare sector has also seen a boost in demand due to the pandemic, as people have become more concerned about their health and well-being. This has led to an increase in demand for healthcare services such as telemedicine, mental health services, and other related services.

Concern about inflation continues

Small businesses bullish on 2023

Despite the overall positive outlook, the report also highlights some significant concerns among small businesses in Australia, particularly with regard to inflation.

The report reveals that two-thirds of Australian business owners are worried that the current inflation rate will hinder their growth prospects. This represents a significant increase of 12 per cent from the previous year.

According to the report, small businesses operating in the fitness, hospitality and tourism, and beauty and wellbeing sectors are among the worst impacted by inflation.

These businesses rely heavily on consumer spending, and rising prices can lead to a reduction in demand, significantly impacting their revenue and profitability.

Furthermore, the concern about inflation is higher for metro-based businesses, which may be due to the higher cost of living in these areas. These businesses face higher operating costs, and rising prices can make it even more difficult for them to remain competitive and profitable.

Banjo Loans CEO Guy Callaghan said it’s wonderful to see optimism about the future running so high,  regardless of regional or city location, but that there was a clear gap between consumer sentiment and business sentiment.  

“Australian SMEs are facing significant challenges with inflation, rising supply costs and increasing interest rates this year. Despite all of this, they are showing great resilience and using strategies to continue to ride those waves and thrive,” he said.  

“In a further testament to positivity and confidence, more than a third of SMEs have said they are planning to merge with a competitor or acquire another business in 2023. This is an encouraging sign  that they see a positive future for their business on the horizon.” 

“Thankfully, SMEs aren’t sitting about and waiting; we’re seeing that almost all of them have already developed strategies to manage inflation – 49 per cent have had to apply price increases, and 40 per cent have reduced their costs. They are taking intuitive and positive steps by making plans and  tackling those hurdles to the best of their ability.” 

The report reveals that 76 per cent of businesses in the hospitality sector have had to increase their prices in response to inflation. In contrast, those in the banking and financial services and trade sectors have had to reduce costs to cope with the economic pressures.

Small businesses bullish on 2023

The report also highlights another worrying trend, with one in five SMEs having built up tax debt. This is particularly prevalent in the accounting sector, where 42 per cent of businesses have accumulated tax debt, followed by the fitness sector with 31 per cent and the trades and services sector with 30 per cent.

However, the report indicates that over half of those with tax debt has taken proactive steps by setting up a payment plan with the Australian Taxation Office (ATO).

In a tight labour market, the report indicates significant demand for new hires this year, with 62 per cent of SMEs planning to increase their headcount. On average, the surveyed SMEs are looking to grow their staff by six new employees.

“Perhaps as expected, this staffing demand is led by healthcare, hospitality and manufacturing. These sectors have been particularly under the pump since COVID, with immigration slow to resume. SMEs tell us that recruitment is a challenge. One-third are reporting difficulties in finding staff, and two in  five have concerns about labour shortages.” 

Increase wages amidst labour shortage

SMEs are increasingly turning to higher salaries to attract and retain talent in a tight labour market. In a bid to lure skilled workers away from their competitors, many SMEs have ramped up their pay packages, with reports suggesting that this trend is on the rise.

Half of all SMEs in Australia plan to leverage funding this year to drive growth. Metro-based businesses, in particular, are expected to take advantage of the available funding options to expand their operations. 

The report also highlights that business loans are the most preferred funding source among business owners, with those in the construction, real estate, and healthcare sectors being the most likely to seek this type of funding.

“While economic conditions are becoming increasingly harder to navigate, SMEs seek expert advice and turn more towards accountants and finance brokers to help them secure the funding they need to grow. Many are finding value in using Finance Brokers to help source affordable interest  rates and make the overall borrowing process much simpler to navigate.” 

“However, we’re hearing that accessing external funding isn’t easy for half of the SMEs due in part to increased interest rates. Many are also finding that it takes far too long for banks to reach a decision when small businesses would prefer a nimbler process. 

“This inability to access funding is a barrier to growth for one-fifth of small businesses.” 

Banjo Loans works with thousands of SMEs, providing unsecured loans to fund their growth, with its fintech model enabling lending decisions to be given in as little as 48 hours.  

“While inflation is a definite cloud on the 2023 horizon, SMEs’ confidence and revenue are high. It’s  heartening to see they’re actively planning to acquire, grow, and hire.” 

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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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