A growing divide is emerging across Australia’s small and medium enterprise (SME) sector, with workforce stability increasingly separating businesses positioned for growth from those facing mounting operational pressure.

Findings from the ScotPac SME Growth Index Report reveal that one in three SMEs experienced higher staff attrition in the past year – continuing the significant decline in average SME headcount from 88 full-time equivalent employees in 2014 to just 51 today.

The research exposes sharply mixed outcomes for businesses operating with leaner workforces, highlighting the complex relationship between staffing levels and productivity.

A Sector Divided

For many SMEs, higher attrition and reduced headcount translated directly into business disruption. Within this group, 13% reported lower productivity and 11% missed opportunities to expand into new markets – consequences that compounded existing pressure on margins and growth potential.

However, the picture is not straightforward. An equal proportion within the same cohort – 13% – reported improved productivity despite higher staff turnover, driven by better business processes, including the adoption of AI and automation technologies.

Extra expenses were common for SMEs with higher staff churn, with 12% incurring additional induction and training costs, and 9% becoming more reliant on outsourced services.

Stability as a Strategic Advantage

The findings tell a markedly different story for SMEs with stable or low attrition rates. Almost one in four SMEs reported no difficulty retaining talent, and the benefits for those with lower staff churn were tangible and far-reaching. Within this cohort:

  • 15% grew their revenues
  • 10% successfully entered new markets
  • 10% were able to service larger orders and transactions.

ScotPac CEO Jon Sutton said the results reflected a broader shift in how SMEs are approaching productivity and growth.

“Australian SMEs are becoming significantly leaner businesses, and we are increasingly seeing that productivity is no longer simply about workforce size,” Mr Sutton said.

“The SMEs performing strongest are often those investing in workforce stability, smarter operational processes, technology adoption and flexible business structures that allow them to scale more efficiently.”

Funding Pressures on Both Sides of the Divide

Mr Sutton said workforce volatility was also creating new funding pressures for SMEs already navigating a complex economic environment.

“Recruitment costs, onboarding expenses, outsourcing requirements and productivity disruption can all place additional strain on margins and working capital,” he said.

“At the same time, businesses with stable teams are often looking to expand, take on larger contracts and invest in growth – and both scenarios create demand for flexible funding solutions.”

With many SMEs continuing to balance softer economic conditions, elevated operating costs and ongoing labour market uncertainty, Mr Sutton said access to fast and flexible funding remained critical.

“Whether businesses are managing staff shortages, investing in productivity improvements or positioning for expansion, having reliable access to working capital can make a significant difference to operational resilience and long-term growth.”

About the 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 24 research was conducted by East & Partners who interviewed 728 SME enterprises with annual revenues of A$1-20 million.
  • SMEs surveyed have operated continuously for an average of 16.3 years and manage, on average, 51 full-time equivalent employees.
  • Sectors represented in the survey included Property & Business Services (14%), Wholesale (13%), Manufacturing (12%), Retail (10%), Transport & Storage (10%), Personal & Other Services (10%), Construction (10%) and other industries including Mining & Resources, Agriculture / Forestry / Fishing, 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, Business Loans and Asset Based Finance. 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