There are eight prominent challenges small-to-medium suppliers face as the next financial year approaches, according to new research from Alon Rajic, founder of Small Business Loans Australia.
A combination of subdued economic growth, stubborn high interest rates, a drop in household consumption, high job mobility, increasing cyber attacks and mounting sustainability pressures will increase challenges across the board, says the Australian comparison website leader.
This follows on from the 2024 financial year, which saw 90 percent of Australian businesses take a more conservative approach to borrowing.
With this in mind, Rajic has urged small businesses to review their operations, in order to stand strong.
“Small businesses account for more than 95 percent of the Australian business sector and, in turn, the economy. They are now facing particularly challenging times. More than ever, it’s important business owners review their operations, where they are spending, how they are absorbing higher costs, and how to protect their business from overspending, cyber security threats and increasing climate accountability,” said Rajic.
“Most importantly, business owners should get to know what supports and solutions – from government to private finance providers – are available to them. Understand the landscape, prepare early, and you will navigate tough times easier.”
Based on his research, Rajic shares the top eight challenges small suppliers face throughout the 2025 financial year, alongside recommendations on how to navigate them:
1. Absorbing financial pressures: 43 percent of small businesses failed to make a profit in the last financial year and 75 percent of owners took home less than the average wage, yet small-to-medium businesses (SMBs) continue to absorb the cost of inflation, higher interest rates and wage increases, forcing them to tighten budgets and be conservative about investing in capital to sustain and grow their business.
With economic growth expected to remain subdued for longer than expected, these financial pressures are likely to continue into 2025. The 2024/2025 federal budget has allocated $641.4million to supporting small businesses through energy bill rebates, measures to improve cash flow and payment times, and an extension to the instant asset write-off and more.
2. Cyber-attacks ramping up: Data breaches rose 19 percent in the second half of 2023 with malicious or criminal attacks accounting for 67 percent. Email compromise, business email fraud and online banking fraud are the top business cybercrimes, costing businesses $214,800 in FY22/23, which is 14 percent higher than the previous year.
As cyber criminals become more sophisticated, SMBs will need to invest more in protecting their business by updating software, engaging an IT professional, getting cyber security insurance, and educating staff about security measures and management.
Rajic says basic measures to implement now include turning on multi-factor authentication and backing up information and data.
3. Lower investment in business assets: Another recent study found that 90 percent of Australian businesses are pulling back on borrowing, with 69 percent holding off on investments that would improve or grow their business.
The caution among businesses comes as the RBA holds the cash rate at 4.35 per cent, indicating interest rates will remain high and the economic outlook uncertain for longer than expected.
Nearly half (45 percent) of business owners say they will spend more time sourcing and comparing the best value loan, while 23 percent will spend more time considering whether to apply for a loan at all to grow their business.
4. Job mobility highest in a decade: Employers are under pressure to attract and retain staff, as one third (36 percent) of occupations assessed by the federal government were in national shortage.
Job mobility has been an issue for some time, having reached 9.5 percent in February last year, its highest rate in a decade. The latest ABS report shows 2.3 million Australians left or lost their jobs, with professionals accounting for 24 percent.
Flexible working arrangements, social events, team building days and novated leases are among the retention and acquisition incentives that businesses are considering.
5. Consumers rein in spending: Consumers became more selective in their spending in the first quarter of 2024, with discretionary buys such as home furnishings, household equipment, and other miscellaneous goods and services all experiencing a downturn.
Recovery in household consumption is set to take longer than expected, with change now forecast for late 2024. Rather than reducing quality of their products and services, and raising prices, Rajic says businesses could look to loyalty programs to retain their best customers, look into ways to streamline their business operations to cut costs, and position themselves for recovery.
6. Rising cost of car ownership: Vehicle running costs are rising, with petrol prices jumping an average 23.3 cents per litre since May last year, and maintenance averaging $900 annually.
Wait times on new cars are also strained, averaging 63 days, with Ford recording wait times of 193 days and Toyota recording 198-day waits.
7. Sustainability pressure mounting: 2025 marks the five-year countdown to Australia’s 2030 emission reduction target of 43 percent, and the first phase of a pending climate reporting regime requiring businesses to report decarbonisation plans and targets.
Once the Treasury Laws Amendment Bill that is before Parliament is approved, it will mandate sustainability reporting – starting with large companies and flowing on to SMBs with over 100 employees by 2027.
Authorities are advising businesses to start preparing for these changes now, adding another pressing matter to the SMB to-do list.
8. Hidden costs in overseas buying: Goods may be cheaper overseas but buyers are missing the hidden costs in doing business this way.
In a recent study, nearly half (49 percent) of SMBs say they make international purchases of $2000-plus on credit cards, which are now the largest source of bank fees.
In FY23, credit card revenue came mostly from foreign currency conversion charges, which can be up to 3.5 percent. Add annual administration fees and high interest on unpaid balances, and an international bargain quickly loses its shine.
Yet, in the same study, 63 percent of SMBs say they use credit cards on international purchases for convenience, while 31 percent say they do not have time to research other payment methods. Rajic suggests exploring specialised transfer providers.
