The economic signals coming through right now are mixed. Inflation is proving stickier than expected. Insolvency rates are climbing. And underneath it all, the cost of running a business in Australia continues to rise. 

For SME businesses, this creates a challenge: how do they plan for the year ahead when the economic backdrop keeps changing? 

The answer lies in understanding what’s actually happening in the Australian economy right now – and what it means for your clients’ cash flow, risk profile and funding decisions. 

The Economic Picture 

Inflation picked up materially in the second half of 2025, with growth in private demand strengthening substantially more than expected, driven by both household spending and investment. Australia’s annual inflation climbed to 3.8% in December 2025, surpassing market forecasts and remaining above the RBA’s 2-3% target. 

That’s why the Reserve Bank increased the cash rate by 25 basis points to 3.85 per cent on 3 February. While the rate decision caught some business owners off guard, it reflects the underlying pressure in the economy. 

Meanwhile, wages rose 3.4% over the twelve months to September 2025, which means many SMEs are still dealing with cost pressures that aren’t fully offset by revenue growth. 

What This Means for SMEs 

These economic conditions affect your clients in several ways: 

Borrowing costs have increased

If they’re carrying debt, repayments have likely increased. For variable-rate facilities, that’s immediate. For clients refinancing or seeking new funding, the cost of capital is now higher than it was 6 weeks ago. 

Customer spending patterns are changing

Consumer confidence hits its lowest level since December 2023 as consumers continue to cut back on non-essential spending. Even if your client isn’t in retail, discretionary spending affects the entire supply chain. If their customers are tightening their belts, they’ll feel it in payment terms, order volumes, or pricing pressure. 

Margin pressure isn’t going anywhere

The cost of utilities is cited as the biggest area of concern with 30% of businesses saying they are the cause of the most pressure on their bottom lines. Add wages, insurance, and rent to the mix, and you’re looking at a cost base that’s structurally higher than it was 2 years ago. 

Where the pressure is building 

These conditions don’t automatically mean trouble. Many businesses are still trading well and staying profitable. 

But when costs stay high, demand is uneven and cash cycles tighten, risks start to surface – through cash flow strain, compliance pressure and delayed decisions that become harder to unwind over time. For brokers, this is typically where you’ll see more clients looking for options, rethinking terms, or needing a clearer plan for managing timing gaps. 

Insolvency rates are climbing

Insolvency data is starting to reflect that pressure. Business-related personal insolvencies surged 38% year on year in December, while bankruptcies increased to 1,306 companies in December from 1,071 in November 2025. This doesn’t mean the economy is tipping into crisis, but it shows that more SMEs are reaching the point where cash flow timing issues, rising costs and accumulated obligations can no longer be absorbed. It also means earlier conversations and faster triage matter more – before a client loses flexibility with lenders, suppliers or the ATO. 

The ATO is not backing down

The tax office is pursuing recovery of more than $50 billion in collectable debt, with small business representing a significant portion of that figure, and their approach has fundamentally changed. The ATO has now adopted a firmer stance on restructuring and repayment arrangements, with increased use of garnishee notices and director penalty notices for businesses that fall behind. 

Payday Super is adding complexity

From 1 July 2026, employers will be required to pay superannuation at the same time as wages under the Payday Super reforms. While the change aims to improve retirement outcomes and reduce unpaid super, it creates an immediate impact for many businesses. 

Instead of paying super quarterly, you’ll need to factor it into every pay run. For businesses already managing tight cash cycles, this changes the timing of a significant outgoing, removing a buffer that some businesses have relied on during lean periods. 

Five Strategies to Help Clients Navigate 2026 

So what should you actually do with all this information as your client’s trusted advisor?

1. Get forensic aboutthenumbers

Encourage clients to run cash flow projections under interest rates staying at current levels or going higher. Stress test your margins against energy costs rising another 10-15% and wages growing at 4%.  

Model out the Payday Super impact now, before July. Understand exactly how much additional cash they’ll need in their operating account each pay cycle and adjust forecasts accordingly. 

If the numbers don’t work, you know where to focus the conversation. 

2. Get ahead of ATO obligations

If a client is carrying tax debt or struggling to meet obligations, they should engage with the ATO proactively. The businesses getting into serious trouble are the ones avoiding the conversation. The ATO has more flexibility when businesses come to them with a realistic plan before they come to the business with a penalty notice.

Position this as financial discipline. If they can’t meet tax obligations on time, that’s a signal their working capital structure needs attention. 

3. Review your client’s working capital structure

When margins are tight and costs are rising, timing becomes critical. Are they carrying too much stock? Are payment terms with customers too generous? Are they taking full advantage of supplier terms? These questions determine whether they have cash to seize opportunities or whether they’re constantly firefighting. 

4. Separate growth capital from operational funding. 

Clients shouldn’t fund day-to-day operations from the same sources they use for expansion. Growth should be funded by growth-appropriate capital, while operations need reliable, flexible working capital solutions. 

5. Think about finance as a timing tool

Many businesses wait untilthey’re in trouble to think about funding. Finance works better when it’s used to manage timing gaps. 

If a client has $200,000 in outstanding invoices but suppliers want paying in 14 days, that’s a timing issue. The right finance structure helps smooth those gaps without burning reserves or missing opportunities. 

How Business Finance Fits Into a Client’s Working Capital Structure 

Most businesses experience timing mismatches. They land a big contract, but the customer pays on 60-day terms. They need to buy inventory, pay staff, and cover overheads before that invoice gets paid. Or they want to upgrade equipment that will improve efficiency, but they don’t want to drain cash reserves right before the busy season. 

Business finance can help manage these natural timing gaps. 

Converting receivables into available funds

Invoice finance lets your clients access cash tied up in unpaid invoices without waiting for payment terms to expire. For businesses with strong sales but lumpy cash cycles, it maintains momentum without constantly chasing payments. 

Funding growth without draining reserves

Asset finance allows your clients to acquire equipment, vehicles, or technology while preserving their cash buffer. When they’re investing in assets that generate revenue or improve efficiency, spreading the cost often makes more sense than depleting working capital in one hit. 

Managing supplier payment gaps

Trade finance can help bridge the gap between paying suppliers and receiving customer payments, particularly for businesses dealing with imported goods or longer supply chains.  

Maintaining operational flexibility

A business loan or line of credit can let your clients act on opportunities – whether that’s securing better pricing through early payment discounts, taking on a project that requires upfront investment, or simply maintaining operational flexibility during seasonal fluctuations. 

Think about finance as part of a client’s working capital structure. The SMEs that navigate volatility well are the ones that have these tools in place before they need them, rather than scrambling to arrange funding when they’re already under pressure.