Majority of small businesses expect to hit a cash flow crisis before FY24

Alon Rajic, Founder and Managing Director of Small Business Loans Australia
Alon Rajic, Founder and Managing Director of Small Business Loans Australia

With economic challenges expected to continue into FY24 – from inflation and supply chain lags to higher interest rates and reduced consumer spending – businesses will need to keep a close eye on their income and expenses to maintain positive cash flow. Now, concerning new research reveals three-quarters of SMEs expect reduced cash flow before July next year.

The finding was derived from a survey of an independent panel of 253 Australian SME owners and decision makers, commissioned by Small Business Loans Australia, an Aussie comparison website helping Australian business owners find the best financing and loan options in Aussie. The respondents comprised 68% of micro businesses (1-10 employees), 18% of small businesses (11-50 employees) & 14% of medium-sized businesses (51-200 employees).

What do small business owners think of cash-flow crisis?

Three quarters (76%) of respondents revealed their cash flow will be impacted by fast-growing interest rates and inflation before FY24. Specifically, 30% believe their cash flow will be impacted because it will be harder to collect customer payments, while 26% said it will be harder to attract sales. A further 20% said both issues will impact their cash flow. The survey also found 44% of respondents don’t have a strategy to maintain cash flow in tough times.

Small Business Loans Australia also asked respondents how much cash flow they required each month to meet their business expenses. More than a third (39%) said they require more than $50,000 – even with 68 per cent of all respondents being micro businesses.

Will fewer businesses invest in themselves by FY24?

Small Business Loans Australia sought to find out if fast-rising interest rates and inflation would impact small businesses’ ability and motivation to invest in themselves. Specifically, over a quarter (29%) of respondents had not planned to invest in their businesses at all this financial year. 40% will delay planned investments until conditions improve, indicating the motivation to grow for many small businesses is directly linked to good economic conditions.

Fifteen (15%) will cancel, or have already cancelled, investment in their businesses, while just 17% will continue investing. Among the businesses who had planned to invest in themselves before July 2024 (including those who are cancelling their investments), half (56%) planned to invest more than $50,000, and a quarter (27%) planned to invest more than $70,000.

The recent ABS Business Conditions and Sentiments survey found that in the first three months of 2023, 30 per cent of employing businesses had planned to increase wages and salaries, and 27 per cent would increase employee numbers. However, small businesses are less likely to action these investments to the same extent as larger businesses.

What are the executive’s thoughts on the research?

Alon Rajic, founder of Small Business Loans Australia, says, “As Australian businesses continue to face the repercussions of the last two years, a significant proportion will have challenges, particularly without a savings buffer or strategy to help meet their expenses.”

“One of the most effective ways to invest in, and protect, a business is to grow customers and sales – especially acquiring customers who themselves have healthy incomes and good cash flow. This could be a good time for small businesses to develop a strategy to not only survive, but to grow. Businesses often reduce costs when external conditions impact them, but then de-prioritise driving new sales. However, there are opportunities even in tough conditions.”

“Growth often requires investment. Improving your product or service offering, getting in front of new customers, and customer loyalty will be important for many businesses who want to succeed in these times. For most, it will require financing,” he went ahead to add.

Alon adds: “Businesses seeking financing to help them will have a plethora a loan products to wade through. Research and loan comparisons will be important to finding the most suitable and lowest-risk loan. This may include flexibility in repayments and lower fixed interest rates. Many loans may have hidden costs and fees that should be factored into decision-making.”

“However, ultimately, it is important for SMEs to seek advice from a licensed financial adviser before committing to a loan to ensure they can meet repayments and higher interest rates during periods of reduced cash flow. Using a comparison service can also assist in finding an appropriate loan option with lower interest rates,” Alon Rajic said in conclusion.