With CBA and HSBC stating that there is a 50 per cent chance of a recession happening in the future, new data revealed that 55 per cent of small and medium businesses will first cut employee-related expenses in the event of a recession.
These figures are from a survey conducted by business loan comparison site Small Business Loans Australia which has noted that this puts a greater strain on the cost-of-living crisis for ordinary Australians.
The survey noted that both medium and micro-sized businesses would be the first to cut internal staff in the event of a recession, at 23 per cent and 21 per cent, respectively.
Meanwhile, 77 per cent of medium-sized business owners would make cuts directly affecting their employees, which includes cutting both internal and outsourced staff, decreasing employee spend, pay cuts for senior leaders and cutting opportunities for business travel.
Alon Rajic, Founder and Managing Director of Small Business Loans Australia, commented, “Smaller businesses may be less likely to cut internal staff due to operating leaner teams, where everyone is vital to the day-to-day operations. They often also have stronger interpersonal ties between employees and managers, making it challenging for smaller business owners to consider laying off internal staff.”
The research also noted that business owners are looking to prioritise their own salaries over the job security of their employees, with only five per cent considering implementing pay cuts for senior leaders, including themselves, during a recession. By contrast, 33 per cent would prioritise staff redundancies as a cost-saving measure.
With 955,861 SMEs in Australia, a significant proportion of the working population will be impacted by job cuts at a time that will hurt them the most according to the report, with cost of living hitting records highs.
“We know that more than three-quarters of SMEs expect their cashflow to be affected by the current economic climate. When it comes to a recession, smaller businesses face similar risks as their larger counterparts, but their limited scale leaves them more vulnerable and increases the risk of failure in a downturn. It’s important for business owners to start considering the potential risks now, and think about what actions they might take, considering the impact on their business as well as for their employees,” said Rajic.
