Key findings – contained in the latest edition of ScotPac’s bi-annual SME Growth Index Report – followed a 3.5% increase in national minimum wage and award rates on 1 July.
That jump lifted Australia’s minimum full-time wage to $24.95 an hour, or $948 a week before tax. Casual workers on the national minimum wage also receive a 25% loading, adding to the strain felt by business owners in sectors like retail and hospitality.
Electricity costs, which have increased more than 50% in just 18 months, now consume around 8% of the average SME cost base. Wages and associated employee costs account for between 40%-60% and SME costs, with service industries represented at the upper end.
Heading the list of other price pressures identified by SMEs are fuel (42%), compliance costs (39%), interest costs (35%), gas (30%), insurance (28%) and logistics (28%).
Short-term cost-cutting measures risk long-term pain
To manage escalating expenses and stave off insolvency, SMEs outlined a mix of short-term measures they are adopting, some of which may stunt future growth:
- 72% of SMEs have frozen new recruitment
- 62% of SMEs are delaying capital expenditure
- 58% of SMEs have reduced operating costs
- 7% of SME owners said they are now working longer hours
ScotPac CEO, Jon Sutton said wage inflation and high energy costs have forced a tipping point for SMEs with owners now having to make tough short-term decisions.
“Australian SMEs have shown incredible resilience in the face of rising costs in recent years, but many are now operating in survival mode as cost pressures intensify,” Mr Sutton said.
“Defensive strategies like freezing new hires or deferring capex are understandable when profit margins are being eroded, but they can undermine long-term growth,”
“One of the most powerful tools for SMEs in combating rising costs without stalling growth is stable, predictable cash flow,”
“When cash flow is strong, businesses are better placed to absorb cost pressures, retain staff, and invest in their future, rather than just survive from quarter to quarter,”
“Brokers are playing a crucial role in helping SMEs navigate this environment,” Mr Sutton said. “Their ability to find the right funding solution, tailored to a business’s needs, can mean the difference between standing still and moving forward.”
Just 19% of respondents in the latest SME Growth Index Report said they had turned to a business finance solution to free up working capital.
Mr Sutton encouraged more business owners to seek advice on appropriate finance options to help smooth the cash flow peaks and troughs that are commonplace in many sectors.
“The best-performing SMEs are those that take proactive steps to stabilise their cash flow,” Mr Sutton said. “That is an area where ScotPac has unparalleled expertise and product depth.”
“Our new Line of Credit, which gives SMEs the ability to draw funds on demand and only pay for what they use, is just one example of how ScotPac can help.” he said.
