Rising wage inflation and interest rates top the list of concerns for SMBs

Jon Sutton, Chief Executive Officer at ScotPac

Rising wage inflation is the top concern for SMBs with over 70% of small-and-medium-sized-enterprises worried about increased wage costs impacting their business this year.

According to the latest SME Growth Index by Australia’s nonbank business lender, ScotPac, 75% of larger SMEs (revenue between $5 $20 million) are worried about rising wage costs, with 68% of smaller SMEs (revenue between $1m and $5 million) citing an increase to employee expenses as their number one concern for reaching revenue targets this year.

Rising interest rates are also posing a big threat to SMEs with 45% of SMEs concerned about the impact of higher borrowing costs on their business. However, despite 53.6% of SMEs falling short of revenue targets set 12 months earlier (April 2021) with an average shortfall of 18.8% almost twothirds were confident they will achieve their 2022 revenue targets.

What were the other concerns for SMEs?

ScotPac CEO Jon Sutton said: “SMEs are reporting a higher level of confidence in the economic outlook with a majority saying they are confident in the outlook for their business.”

They are well aware of further challenges on the horizon, with rising wage costs and interest rates the major concerns and they will be looking to the incoming Federal Gov’t for support.”

Other concerns that SMEs expected to negatively impact their operations in 2022 included:

  • Rising fuel prices (30%)
  • higher energy costs (27%)
  • Regulatory and compliance costs (27%) and
  • Logistics fees (25%)
  • Insurance fees (17%)
  • Rising commodity prices (13%)

“With the inflation rate of 5.1% at a 20year high, it’s clear that rising cost impacts represent a genuine threat to SMEs achieving their revenue targets this year. That will inevitably put additional pressure on business cashflow as SMEs grapple with rising cost impacts and delays in passing these costs through to their customers,” Mr Sutton further commented.

How are SMEs looking to solve these problems?

SMEs should carefully consider various solutions to finance their cashflow requirements in this environment, including invoice finance and business loans. Mr Sutton said the SME sector, which employs millions of people across the country, would desperately look to the incoming Federal Government to assist them in addressing these headline challenges.

More than 700 small and medium business leaders participated in the SME Growth Index and they were clear in the type of support they want from the Federal Government,” he said.

“It includes further extension of the accelerated deprecation scheme (24% of SMEs), deeper tax cut relief (18%) and simplified Business Activity Statement (BAS) and regulatory requirements (18%), Mr Sutton said ScotPac’s biannual SME Growth Index, is Australia’s longest running research report on small business sentiment towards growth prospects.

The full report, which is scheduled for release in September incorporates feedback from 700 plus industry participants on topics encompassing revenue forecasts and profit expectations, cashflow management practices, and growth financing intentions. It is a comprehensive temperature check of a sector responsible for employing millions of Australians.