A new survey commissioned by Small Business Loans Australia reveals that 85 per cent of small businesses will make some difficult choices as they strive to get past yet another challenging financial year.
Already, 40 per cent of SME owners say they will postpone planned investments, such as equipment, new hires and technologies, and 40 per cent will reduce their personal income. The study also shows that 39 per cent are also keen to cut costs by switching to lower-cost suppliers and cutting discretionary business spending, while 11 per cent will have to let go of some employees.
Some respondents intend to raise funds to resolve their existing liabilities: 10 per cent will refinance or find ways to pay off their debts quickly and an additional eight per cent of respondents will seek financing to help the business through the tough period.
“Our research suggests that small-business owners will do everything they can to minimise the impact of fast-growing inflation and interest rates on their business, including cutting costs and even underpaying themselves,” Alon Rajic, founder and CEO of Small Business Loans Australia, said.
“They will aim to avoid incurring larger businesses debts while rates are still rising, which will directly impact their investment spend,” Rajic added. “However, businesses know recessions usually don’t last long, so thankfully letting go of their employees seems to be a last resort, and only if needed.”
The survey also found that the smaller the businesses, the more likely the owners will reduce their own pay: 45 per cent of owners of micro-businesses (one-10 employees) would pay themselves less, compared with 31 per cent of owners of small businesses (11-50 employees) and 27 per cent of medium-sized businesses (27 per cent).
Conversely, the larger the business, the more likely they are to let go of employees this financial year: 24 per cent of medium-sized businesses, compared with 17 per cent of small businesses and just seven per cent of micro-businesses.
Larger businesses are also more likely to forego planned investments (56 per cent of medium-sized businesses, compared with 43 per cent of small businesses and 36 per cent of micro-businesses). They are also more likely to cut discretionary spending or switch to lower-cost suppliers (50 per cent of medium-sized businesses, compared with 30 per cent of small and micro businesses).
Respondents were also asked to identify at least one of the biggest challenges they expect to face in FY23. Inflation topped the list of challenges, chosen by 42 per cent, followed by reduced customer spending due to inflation and rate rises, chosen by 41 per cent.
Over a quarter, 28 per cent, of respondents considered the rapidly rising interest rates as a major challenge, whereas just 22 per cent deemed their obligation to pay higher wages due to the minimum wage increase as their toughest obstacle this financial year.
A smaller consensus indicated their biggest concern will be either the inability to fill roles due to candidate shortages (19 per cent), or struggle with accessing financing and servicing loans and other debts (11 per cent). Ten per cent said they will refinance their current loans to get a better deal, and eight per cent said they would get financing.
“Our results suggest that inflation and a potential recession will have a bigger impact on the SME sector than the 5.2 per cent increase to the national minimum wage and a shortage of workers,” Rajic said. “Despite a 10 per cent decrease in the number of unemployed people in June this year, price hikes and reduced consumer spending come out on top as the biggest obstacle with almost half of Australian businesses fearing future struggles with loan repayments and debt.”
