Australia’s small and medium-sized enterprises (SMEs) are still feeling the squeeze of rising costs, with business owners citing wage inflation (82%) and electricity pricing (49%) as their biggest financial pain points.  

The key findings – contained in the latest edition of ScotPac’s bi-annual SME Growth Index Report – followed a 3.5% increase in national minimum wage and award rates on 1 July.

That jump lifted Australia’s minimum full-time wage to $24.95 an hour, or $948 a week before tax. Casual workers on the national minimum wage also receive a 25% loading, adding to the strain felt by business owners in sectors like retail and hospitality.

Electricity costs, which have increased more than 50% in just 18 months, now consume around 8% of the average SME cost base. [Wages and associated employee costs account for between 40%-60% and SME costs, with service industries represented at the upper end.]

Heading the list of other price pressures identified by SMEs are fuel (42%), compliance costs (39%), interest costs (35%), gas (30%), insurance (28%) and logistics (28%).

Short-term cost-cutting measures risk long-term pain

To manage escalating expenses and stave off insolvency, SMEs outlined a mix of short-term measures they are adopting, some of which may stunt future growth:

  • 72% of SMEs have frozen new recruitment
  • 62% of SMEs are delaying capital expenditure
  • 58% of SMEs have reduced operating costs
  • 7% of SME owners said they are now working longer hours

ScotPac CEO, Jon Sutton said wage inflation and high energy costs have forced a tipping point for SMEs with owners now having to make tough short-term decisions.

“Australian SMEs have shown incredible resilience in the face of rising costs in recent years, but many are now operating in survival mode as cost pressures intensify,” Mr Sutton said.

“Defensive strategies like freezing new hires or deferring capex are understandable when profit margins are being eroded, but they can undermine long-term growth.

“One of the most powerful tools for SMEs in combating rising costs without stalling growth is stable, predictable cash flow.

“When cash flow is strong, businesses are better placed to absorb cost pressures, retain staff, and invest in their future, rather than just survive from quarter to quarter.

“Brokers are playing a crucial role in helping SMEs navigate this environment,” Mr Sutton said.
“Their ability to find the right funding solution, tailored to a business’s needs, can mean the difference between standing still and moving forward.”

Just 19% of respondents in the latest SME Growth Index Report said they had turned to a business finance solution to free up working capital.

Mr Sutton encouraged more business owners to seek advice on appropriate finance options to help smooth the cash flow peaks and troughs that are commonplace in many sectors.

“The best-performing SMEs are those that take proactive steps to stabilise their cash flow,” Mr Sutton said. “That is an area where ScotPac has unparalleled expertise and product depth.”

“Our new Line of Credit, which gives SMEs the ability to draw funds on demand and only pay for what they use, is just one example of how ScotPac can help.”

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About ScotPac’s SME Growth Index

Commencing in March 2014, ScotPac’s twice-yearly SME Growth Index is Australia’s longest-running research report on SME sentiment towards revenue growth prospects.

The Round 23 research was conducted by East & Partners who interviewed 724 SME enterprises with annual revenues of A$1-20 million.

SMEs surveyed have operated continuously for an average of 16 years and manage, on average, 53 full-time employees.

Sectors represented in the survey included Property & Business Services (13%), Manufacturing (13%), Wholesale (12%), Retail (11%), Transport & Storage (10%), Personal & Other Services (10%), Construction (10%) and other industries including Mining & Resources, Agriculture, Media & Telco, Accommodation, Cafes & Restaurants, Finance & Insurance (non-bank) and Electricity, Gas & Water.

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ScotPac is Australia and New Zealand’s largest non-bank SME business lender, providing funding to small, medium and large businesses from start-ups to enterprises exceeding $1 billion in revenues. For over 35 years, ScotPac has helped thousands of business owners succeed, offering fast and flexible funding. From simple to complex, small to large, start-up, growth or turnaround – ScotPac can help with a range of funding including Invoice Finance, Trade Finance, Asset Finance, Line of Credit and Business Loans. ScotPac was recently awarded The Adviser Magazine’s Debtor Finance Loan of the Year for a sixth time.

 

For more information contact:

 

Todd Hayward
Mob: 0412 205 151