The latest figures from the ASBFEO Small Business Pulse revealed an increase by 0.1 per cent in May 2025, the first quarterly increase recorded since August 2022, after falling to 0.9 per cent in the past 12 months.
The report found that while cashflow remains a significant concern for small businesses, many have a sense that the worst is over with moderating inflation pressures, improving consumer sentiment and a small uptick in optimism following the Reserve Bank of Australia’s recent reductions in the target cash rate.
Australian Small Business and Family Enterprise Ombudsman Bruce Billson explained that this modest lift reflected a shift towards re-pricing as input inflation starts to ease, with a longer-term view on margins, cost containment and growth opportunities among small-business owners.
“For small and family businesses, higher interest rates not only impact their costs of financing but have profound implications for customers in terms of their spending, preferences and confidence. The Reserve Bank of Australia’s decision to further reduce the target cash rate to 3.85 per cent and moderating inflation pressures provide a ray of light after a prolonged period of difficult conditions for small and family businesses,” Billson said.
The report noted that household spending is showing early signs of recovery, although it remains weak in the hospitality industry. Cost of living pressures still remain, constraining demand in the hospitality sector and other sectors that rely on discretionary spending.
The recent flooding may also adversely impact some small businesses. “Many small businesses have navigated the impacts of natural disasters so far this year,” Billson said. “However, the recent flooding will likely have an impact over the year (and potentially years to come), with small businesses active in seeking help tailored to their very difficult circumstances.”
While there has been a modest uptick in small businesses considering hiring additional staff, particularly in the hospitality and disability support industries, many businesses still find it difficult to find suitable staff. “(This is) reflecting a persistently tight labour market, and prospects for productivity improvement remain weak,” the Ombudsman commented.
The Small Business Pulse is a health check of objective vital signs for small businesses while also taking into account the ‘animal spirits’ that drive decision making.
“The small uptick in optimism of small-business owners is magnified in those considering starting a business. These entrepreneurial ideas focus on addressing social and environmental issues such as improving outcomes for vulnerable people, sustainable farming and renewable energy. Queries about starting a business were notably driven by an uptick in current and prospective digital nomads and influencers.
“We need to do more to energise enterprise and create and nurture the spark that will inspire someone to turn an idea into investment, to build a business, to take on the risk and big responsibility of creating an opportunity-generating new enterprise, and to employ that extra person,” Billson said.
