Four in ten Aussie SMEs to cut costs and postpone investments in FY23

Alon Rajic, Managing Director at Money Transfer Comparison

A taxing financial year is forecasted for Aussie businesses, with many feeling the pressures of a tight labour market, capacity constraints, tighter borrowing criteria and supply chain disruptions. In March, the business exit rate in Australia reached almost 4% as inflation and interest rates were projected to shoot up. Research from a financial comparison website uncovered some financial decisions SMEs will make in FY23 to guarantee their survival. 

What were the findings of the study?

A survey of an independent panel of 253 Aussie SME owners, by Small Business Loans Australia, a free comparison website helping businesses find the best loan options, found that 85% will make tough choices to see them through the other side of a challenging financial year. The survey results, including breakdowns across ages and States, can be found here.

Reducing operation costs

40% of business owners will postpone planned investment, like equipment, hires and tech, and 40% will reduce their personal income. 39% will cut costs by switching to lower-cost suppliers and cutting discretionary business spending, while 11% will let go of some workers.

Some participants propose to raise available funds to resolve their existing liabilities: 10% of businesses will refinance or find ways to pay off their debts quickly and an additional eight per cent of respondents will seek financing to help the business through the tough period. 

Size of business to play vital role in what measures to adopt

The study found that the smaller the businesses, the more likely are the owners willing to reduce their own pay: 45% of owners of micro businesses (1-10 employees) would pay themselves less, compared with 31% of SMBs (11-50 employees) and 27% of medium-sized businesses. The larger the business, the more likely they are to let go of employees: 24% of medium-sized, compared with 17% of SMBs and 7% of micro businesses.

Larger businesses are also more likely to forego planned investments (56% of medium-sized businesses, compared with 43% of small businesses and 36 per cent of micro businesses). They are also more likely to cut discretionary spending or switch to lower-cost suppliers (50% of medium-sized businesses, compared with 30% of small and micro businesses).

Inflation and reduced consumer expenditure a major worry

Respondents were also asked to identify at least one of the biggest challenges, from a list of six, that they expect to face in FY23. Unsurprisingly, inflation topped the list, chosen by 42%, followed by reduced customer spending due to inflation and rate rises (chosen by 41%).

More than a quarter (28%) considered the rapidly rising interest rates as a major challenge, whereas 22% deemed their obligation to pay higher wages due to the minimum wage increase as the toughest obstacle this financial year. A smaller consensus indicated their biggest concern will be either the inability to fill roles due to candidate shortages (19%), or struggle with accessing financing and servicing loans and other debts (11%).

What were the executive’s thoughts on the study?

Alon Rajic, founder and CEO of Small Business Loans Australia, says: “Our study suggests that SMB owners will do everything to minimise the impact of fast-growing inflation and interest rates on their business, including cutting costs and even underpaying themselves.”

“They will aim to avoid incurring larger debts while rates are still rising, which will directly impact their investment spend. However, businesses know recessions usually don’t last long, so thankfully letting go of their employees seems to be a last resort, and only if needed.”

Alon says: “Our results suggest that inflation and a potential recession will have a bigger impact on the SME sector than the 5.2% increase to the national minimum wage and a shortage of workers. Despite a 10% decrease in the number of unemployed people in June, price hikes and reduced consumer spending come out on top as the biggest obstacle with almost half of Australian businesses fearing future struggles with loan repayments and debt.”

One in 10 (10%) said they will refinance their current loans to get a better deal, and 8% said they would get financing. Alon said, “Looking for the right loan in this environment of rising interest rates and a plethora of loan options can be overwhelming for small businesses.”

“Comparison websites are one of the easiest ways is to shop around – particularly ones that specialise in business lending. In addition to interest rates, consider fees, charges and any options that give you flexibility in paying down your loan,” Alon further commented.

The full survey results, including breakdowns across ages and States, can be found here.