Concerning new research predicts that three-quarters of small businesses expect reduced cash flow before July next year.

With economic challenges expected to continue into FY24 – from inflation and supply chain lags to higher interest rates and reduced consumer spending – businesses will need to keep a close eye on their income and expenses to maintain positive cash flow. Now, concerning new research reveals three-quarters of SMEs expect reduced cash flow before July next year.

The finding was derived from a survey of an independent panel of 253 Australian small and medium business owners and decision makers, commissioned by Small Business Loans Australia. The respondents comprised 68 per cent of micro businesses (1-10 employees), 18 per cent of small businesses (11-50 employees) and 14 per cent of medium-sized businesses (51-200 employees).

“As Australian businesses continue to face the repercussions of the last two years, a significant proportion will have challenges, particularly without a savings buffer or strategy to help meet their expenses,” says Alon Rajic, founder of Small Business Loans Australia.

Most small businesses expect to hit a cash-flow crisis

Three-quarters (76 per cent) of respondents believe fast-growing interest rates and inflation will hit their cash flow before FY24. Specifically, 30 per cent believe their cash flow will be impacted because it will be harder to collect customer payments. A further 26 per cent said it will be harder to attract sales and 20 per cent said both issues will impact their cash flow.

The survey also found that 44 per cent of respondents do not have a strategy in place to maintain cash flow during tough times.

Small Business Loans Australia also asked respondents how much cash flow they needed to meet their monthly business expenses. More than a third (39 per cent) said they require more than $50,000 – even with 68 per cent of all respondents being microbusinesses.

Business investment impacted by current economic climate

Small Business Loans Australia sought to find out if fast-rising interest rates and inflation would impact small businesses’ ability and motivation to invest in themselves. Specifically, more than a quarter (29 per cent) of respondents had not planned to invest in their business at all this financial year.

Forty per cent will delay planned investments until conditions improve, so motivation to grow is directly linked to good economic conditions.

Fifteen per cent will cancel, or have already cancelled, investment in their businesses, while just 17 per cent will continue investing.

“One of the most effective ways to invest in, and protect, a business is to grow customers and sales – especially acquiring customers who themselves have healthy incomes and good cash flow,” says Rajic. “This could be a good time for small businesses to develop a strategy to not only survive, but to grow. Businesses often reduce costs when external conditions impact them, but then de-prioritise driving new sales. However, there are opportunities even in tough conditions.”

Among the businesses who had planned to invest in themselves before July 2024 (including those who are cancelling their investments), half (56 per cent) planned to invest more than $50,000, and a quarter (27 per cent) planned to invest more than $70,000.

“Growth often requires investment. Improving your product or service offering, getting in front of new customers, and customer loyalty will be important for many businesses who want to succeed in these times. For most, it will require financing,” Rajic says.

Employee and wages growth a priority

The recent ABS Business Conditions and Sentiments survey found that in the first three months of 2023, 30 per cent of employing businesses had planned to increase wages and salaries, and 27 per cent would increase employee numbers. However, small businesses are less likely to action these investments to the same extent as larger businesses.

Rajic adds: “Businesses seeking financing to help them will have a plethora a loan products to wade through. Research and loan comparisons will be important to finding the most suitable and lowest-risk loan. This may include flexibility in repayments and lower fixed interest rates. Many loans may have hidden costs and fees that should be factored into decision-making.

“However, ultimately, it is important for SMEs to seek advice from a licensed financial adviser before committing to a loan to ensure they can meet repayments and higher interest rates during periods of reduced cash flow. Using a comparison service can also assist in finding an appropriate loan option with lower interest rates.”

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3 in 4 small businesses expect to hit a cash flow crisis