Australian small businesses continue to face significant cashflow challenges – and they’re battling the crunch in a variety of ways, according to the latest SME Compass report by Banjo Loans.
Cutting back on investment
Firstly, and unsurprisingly, the new research has found many business owners are spending money on just the essentials, with many cutting back on business investments right now. Almost half (45 per cent) of the SME owners surveyed said that they had delayed strategic investments and put off business opportunities in the last 12 months. This was especially prevalent among manufacturing (56 per cent), financial and insurance (53 per cent) and arts and recreation businesses (53 per cent) sectors.
“Cashflow remains a critical issue for SMEs, which highlights the importance of careful financial management to ensure [they] can continue to focus on growth and run their businesses without losses in this uncertain market,” commented Banjo Loans CEO Guy Callaghan.
Looking ahead, 39 per cent of SMEs say they will continue cutting costs to combat inflation,
Raising prices
Small businesses have been reluctant to pass price increases onto customers, but some have had no choice. The Compass found that almost half (45 per cent) of business owners have raised prices recently to combat inflation – and 36 per cent intend to raise their prices further
Callaghan pointed out that this figure isn’t as high as it has been previously: in 2022 and 2023, 49 and 47 per cent of businesses reported raising prices, respectively.
In fact, many SMEs that have previously passed on rising costs to customers are now prioritising cost reductions and operational improvements instead.
Turning down opportunities and becoming more selective with clients
About a third (30 per cent) of SMEs say they are becoming more selective with clients or sales to minimise overheads. Once again, businesses say they are turning down opportunities due to a lack of certainty and confidence.
The culprit? Inflation, according the Compass report.
“Just two years ago, 50 per cent of the SMEs we surveyed viewed inflation as a growth barrier. However, in the past 12 months this figure has risen to 65 per cent,” Callaghan pointed out.
Even with the recent decision to lower interest rates, and encouraging signs of slowing inflation, the latest data found that inflation continues to be the primary challenge for SMEs.
In fact 65 per cent of SME owners believe inflation will continue to hinder their growth in 2025, with this figure unchanged from last year.
What about those who aren’t struggling with cashflow?
It’s not all doom and gloom: about two-thirds of SMEs were able to meet their cashflow forecast targets in 2024, and 68 per cent said they were on track to achieve their growth targets in the coming year.
What are business owners doing with some extra cash? Of those businesses that had met their targets, 70 per cent focused on significant product improvements and 66 per cent invested in new technology to support business growth.
However, inflation (39 per cent), reduced consumer spending (33 per cent), recruitment challenges (26 per cent) and accumulated tax debt (18 per cent) were cited as the key hurdles for those who weren’t already dealing with a cash crunch.
“There is a certain resilience and determination in the SME sector. That’s why it is such an important part of the economy and a key barometer of our economic outlook,” Callaghan said. “What we are seeing are SMEs continually flexing and adapting their approach to managing inflation by focusing on both internal and external cost reductions, without burdening customers, and all the time still striving for growth.”
