By Zilla Effrat 

With 2023 coming to a close, we report on the top 10 issues facing Australian small businesses to help you prepare for the Christmas season and beyond. 

1. Rising wages

Rising wages are the greatest concern of SMEs, particularly smaller businesses with revenue of less than $5 million, according to the latest ScotPac SME Growth Index.  

More than 60% of SME owners polled across Australia reported feeling the pinch of wage rises, with many under pressure to increase wages in line with inflation that has driven up the cost of living.  

ScotPac’s research found that 63% of SMEs believed labour costs were rising faster than any other expense they faced. When asked how they intended to respond, 56% said they were considering reducing employee headcount or hours, while a similar number of business owners planned to trade their way out through longer operating hours.  

Since July, SMEs have had to pay an increased superannuation guarantee rate of 11% and a higher minimum wage of $23.23 per hour.  

2. Higher interest rates

ScotPac’s SME Growth Index also shows that 40% of SMEs see funding costs as a rising pain point, a clear sign that multiple interest rate rises are starting to bite.  

The Reserve Bank of Australia says rising interest rates have directly small businesses’ interest expenses, especially because many have variable-rate loans.  

3. Cash flow

A survey by Xero conducted earlier this year reveals that a whopping 60% of small businesses had experienced cash flow issues, with 14% experiencing significant challenges. Nearly a third (29%) said they checked their cash flow position daily. 

Xero found that over a quarter (27%) of these businesses had to use their personal savings to keep their business afloat. Worryingly, one-third (34%) of small business owners said they had been unable to pay themselves. 

When asked about the emotional and physical impacts of cash flow management, business owners reported feeling stress (57%), anxiety (50%) and having trouble sleeping (48%) over the previous 12 months. 

4. Labour shortages

Labour shortages were a “very significant” issue for one in three SMEs overall in the second quarter of 2023, according to the latest NAB SME Business Insights. 

It also reveals that SMEs were worried more about the impact labour shortages would have on their business over the next year. 

But Small Business Loans Australia’s research suggests that the pressures have eased for some. One-third (32 %) of its respondents said it had been easier to find talent in the 2023 financial year than in the 2022 financial year. This is compared with 25 % who struggled more to find talent in FY2023 than in FY2022. 

5. Inflation

The Zeller Small Business Resilience Report reveals that small business owners are highly concerned about the increasing costs of supplies and materials. While supply costs have increased across the country, many Australian business owners are worried that their costs have increased at a rate that is much greater than that of inflation. A staggering 80% estimated that their supply costs had increased by more than 10% in just one year, while one in five estimated that their costs had gone up between 20% and 50%. 

6. Reduced consumer spending

Zeller found that 67% of small business owners are concerned about how rising inflation and rising interest rates are affecting consumer spending. 

Their fears are not ungrounded. CBA’s CommBank Household Spending Insights Index confirms the annual growth rate of spending remains weak. Although the index rose 0.5 % in September, annual spending growth dropped to 1.8 % from a peak of 18.7 % in August 2022.  

7. Cybersecurity

SMEs are particularly vulnerable to cyber-attacks because they usually have limited resources to dedicate to cyber security. The recent Australian Cyber Security Centre (ACSC) small business survey found that nearly half of its respondents spend less than $500 on cybersecurity per year. 

The ACSC notes that cyber security has to compete for time and other resources with multiple demands. In addition, small business owners know they are struggling to identify weaknesses in security practices, but do not know where to begin. 

8. Weak consumer sentiment  

The Westpac-Melbourne Institute Consumer Sentiment Index rose 2.9% to 82 in October, up from 79.7 in September, but still remains very low and in deeply pessimistic territory because of still-high inflation and renewed rate rise concerns. According to Westpac, the intense pressures bearing down on the Australian consumer point to continued weak spending in the near term. 

According to NAB, Australians continue to reprioritise spending according to what they value personally. NAB’s latest research shows that Australians are saving around $300 each month by cutting back on eating out at restaurants (55%), micro treats like coffees and lunches out (50%), tickets to the movies (47%) and saving on car trips. 

9. A gloomy outlook

More than 90% of management and turnaround professionals polled for the latest Turnaround Survey believe there is potential for Australia to dip into a recession within the next two years. Worryingly, 70% say recession is likely within the next 12 months, according to t 

The annual survey, conducted by KordaMentha and Turnaround Management Association Australia, found that industry sentiment is the lowest in its five-year history – considerably lower than the previous dip in 2020 due to the impacts of the COVID-19 pandemic. 

10. Uncertainty

The challenges above, combined with global economic and political instability, are creating a perfect storm for SMEs, making it difficult to plan ahead. To navigate this maze of uncertainty, they need to become more flexible and agile. Options could include diversifying their product or service offerings, exploring new markets or investing in technology and innovation to stay ahead of the pack. 

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