Small suppliers across Australia are encountering significant challenges that will continue into the new year, with business failure rates recently climbing to 2020 levels, according to new research from Small Business Loans Australia (SBLA).
The Australian comparison website says 5.04 percent of companies failed in October 2024, which is edging close to the 2020 pandemic peak of 5.08 percent.
Alon Rajic, Founder of Small Business Loans Australia, said small to medium-sized enterprises (SMEs) make up 98 percent of all businesses in Australia and are increasingly doing it tough.
“As we head into 2025, they will likely continue suffering resource shortages, reduced customer spending and continued inflation, all of which strain limited resources,” he said.
“Other challenges like bank fees on international transfers and cyberattacks can be reduced through preparation, awareness and allocation of resources. It is important that SMEs prepare for these hurdles and know how to receive support from either private financial providers or the government.”
SBLA conducted research to uncover the key challenges for small suppliers in 2025, which include:
- Tighter employee laws
Recent industrial relations reforms are increasingly stretching small business resources and making it difficult for them to adapt resources to growth and changing markets, says SBLA.
Reforms include a 5.2 percent increase in the national minimum wage, permitting ‘employee-like’ contractors to seek Commission intervention for unfair contract term disputes, not permitting pay secrecy clauses to address the gender pay gap, multi-employer bargaining, giving employees the enforceable right to seek flexible working conditions and 10 days of paid family and domestic violence leave annually.
Half of Australian SMEs think that the industrial relations reforms will make payroll procedures more complex, according to a study by Rippling, with many completely unprepared for the changes.
The workforce management platform also found 40 percent of SMEs find it difficult to keep up with legislation and compliance obligations.
- SMEs will continue to be resource poor – but AI will help to alleviate business pressures
According to research from Michael Page, 43 percent of SMEs consider the cost of hiring talent too much and a further 47 percent find the hiring process too lengthy, while CreditorWatch found 25 percent of SMEs indicate that lack of time and capacity was the main reason they were unable to integrate new technology into their business.
However, SBLA discovered that 60 percent of all Australian businesses are already using AI, or plan to integrate AI in the next two years, with SMEs adopting AI tools such as AI-powered reporting and chatbots with automated email replies to streamline time-consuming tasks and improve operational efficiency.
- Inadequate government support
Small businesses are finding it increasingly difficult to stay afloat in the current environment of rising wages, reduced customer spending and ongoing inflation. Without further government assistance, many will face increasingly difficult circumstances, says SBLA.
The number of companies forced into external administration this year grew by 39 percent from 2022-23, with a survey by SBLA revealing 94 percent need more government support to help them survive and 41 percent require financial support to pay wage increases.
- Increased competition
SBLA warns SMEs will see more competition in 2025 from an increasing number of Australians starting side hustles, with one in two considering a small business in the next five years.
A further 38 percent would run a side hustle in addition to their main job, with the main motivator being boosting income as inflation and interest rates put pressure on household budgets. As consumer spending continues to drop, this will also place pressure on SMEs.
- Late payments impacting cash flow
Tight cash reserves are predicted to bring continued struggles for SMEs in 2025, with research revealing nearly half of businesses were forced to reduce their own income in 2024 and 31 percent dipped into personal funds to cover business expenses. This is exacerbated by late payments, which reportedly affect three-quarters of businesses.
- SMEs are increasingly vulnerable to cyberattacks
Accenture’s Cost of Cybercrime Study found that 43 percent of cyberattacks target small businesses, with 16,000 more cyberattacks in 2022 than in 2019. This is attributed in part to limited resources, with the report finding that 48 percent of SMEs spend less than $500 a year on cyber security.
- Paying too much in financial services fees
SMEs often lack the resources and time to shop around for better rates across financial products, leading to many overpaying when transacting, says SBLA.
A recent Money Transfer Australia study found that 62 percent are trading internationally through the big four banks, despite generally higher exchange rate mark-ups and fees in comparison to specialist money providers. Businesses could be paying up to $850 in fees when transferring $20,000 through a bank, whereas a non-bank money transfer provider might charge as little as $100.
This begs the question for procurement professionals: how can you support your small suppliers?
