The overwhelming majority (85%) of businesses will make tough choices to see them through the other side of a challenging financial year, a new survey by Small Business Loans has shown.
Specifically, 40% of business owners will postpone planned investment, such as equipment, new hires and technologies, and 40% will reduce their personal income. In addition, 39% will cut costs by switching to lower-cost suppliers and cutting discretionary business spending, while 11% will let go of some employees.
Some participants propose to raise available funds to resolve their existing liabilities with 10% saying they will refinance or find ways to pay off their debts quickly and an additional 8% of respondents will seek financing to help the business through the tough period.
“Our research suggests that small business owners will do everything they can to minimise the impact of fast-growing inflation and interest rates on their business, including cutting costs and even underpaying themselves,” Small Business Loans Australia founder and CEO, Alon Rajic said.
“They will aim to avoid incurring larger businesses 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.”
Respondents were asked to identify at least one of the biggest challenges, from a list of six, that they expect to face in FY23. Inflation topped the list of challenges, chosen by 42% of respondents, followed by reduced customer spending due to inflation and rate rises, chosen by 41% of respondents.
More than one-quarter (28%) of respondents considered the rapidly rising interest rates as a major challenge, whereas just 22% deemed their obligation to pay higher wages due to the minimum wage increase as their 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%).
“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,” Rajic said.
“Despite a 10% decrease in the number of unemployed people in June this year, 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.”