Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Bruce Billson has launched the first ASBFEO Small Business Pulse, revealing the business environment in August remains well below the long-term average.
The business landscape fell 0.6 percent this month for the eighth consecutive time, with a total 3.5 percent decrease over the past 12 months.
Billson pointed to an end of COVID support and COVID-amplified changes in the structure of the economy as the reasons for this, highlighting inflationary pressures, skills shortages, supply chain challenges and interest rate increases.
“For small and family businesses, higher interest rates not only impact their costs of financing but have profound implications for customers in terms of their spending, preferences and confidence. All small businesses know there is no substitute for customers in determining business success,” he said.
The world-leading Pulse ‘health check’ provides an overall perspective of challenges and opportunities for small businesses, examining sentiment, operating conditions and the ability to transform or grow a business.
“The Pulse was created in line with OECD best practice and brings together a range of data sources that can provide early indicators of changes in the lived experience of small business and the motivations that drive them, and is particularly important when conditions are changing rapidly, which traditional sources of information and point-in-time surveys often miss,” said Billson.
The report reveals the business operating environment has been in decline for the past two years, with rising concerns about regulation, increased costs and slowing demand weighing on profitability.
Fewer small businesses are considering expansion or transformation as they struggle to stay open, while new business enquiries are at their lowest level in six months and queries about recruiting new staff have reached their lowest level in nine months.
Queries on advertising, new product offerings and other innovations are also relatively low.
The decline in the operating environment for small business reflects a rise in queries from small business owners about compliance with their regulatory obligations, said Billson.
“The other key driver was rising queries from exhausted small business owners looking at their options. These include those who are in financial distress and those who are looking for a dignified dismount while they still have choices.
“Small business owners are concerned about the viability of their business and whether they can ride the tough economic climate out.
“It’s a real gamble, with the value of debts owed by small businesses increasing over the last year and around half of small business loans secured by the family home. Higher interest rates have increased the cost of this finance. Credit checks for approving credit (either finance or trade credit) had their largest fall in over a year.”
Billson said business insolvencies are rising and small businesses are becoming increasingly concerned that other businesses that owe them money will fold.
“There is good reason for them to be worried, with corporate insolvencies at a record high. Unincorporated business failures have also increased, although they remain below pre-pandemic levels,” he said.
Payment disputes, which Billson says are often an early warning sign of cash flow issues, now account for 42 percent of disputes, which has risen from 36 percent in the last financial year.
Early indicators suggest that the next Pulse, which is due in November, may see an improvement due to rising optimism for starting and growing businesses, but challenges in the operating environment are likely to offset the positive effects.
