Navigating The Economic Impact On Small Businesses In 2024
The business world eagerly anticipates the decline in inflation rates and the equally awaited reduction in interest rates. Despite these expectations, Australian businesses are likely to continue facing somewhat challenging conditions.
SMEs are expected to take caution in spending and investing in new initiatives throughout 2024. Additionally, it is essential to establish realistic expectations and practical strategies to navigate and succeed in the upcoming year.
This article will explore various factors that will have considerable economic impact on small businesses in 2024.
1. Small Businesses Are Pulling Back From Borrowing And Investing
A recent survey conducted by Small Business Loans Australia indicates that the majority of Australian business owners are adopting a more conservative approach to borrowing and investing in their businesses this year.
- Specifically, 90% of survey respondents express increased caution about borrowing money. The majority delay investments such as acquiring equipment or expanding their teams, citing concerns related to the economic environment.
- Moreover, 45% of businesses plan to invest more time in sourcing and comparing the best value loans.
- Roughly 23% will dedicate additional time to deciding whether to apply for a loan at all.
- Another 12% of businesses have no interest in applying for a loan after initial inquiries, and a further 10% are seeking smaller loans than in previous years.
Notably, smaller businesses, often deemed ‘riskier’ by lenders, typically face higher borrowing costs. This puts even more pressure on micro-businesses (one to four employees) to secure the best deals.
2. Increased Inflation Rates And Interest Rates Raise Serious Concerns Over Sales Performance
A significant portion of the decline in sales is attributed to increasing prices. Household incomes are facing significant strain due to the combined effects of high inflation and rising interest rates.
Consequently, people are reducing their spending and trying to save more. This shift in consumer behaviour is having a substantial impact on business sales, particularly in sectors offering non-essential goods and services.
Data from the Council of Small Business Organisations Australia (COSBOA) indicates that median spending across all sectors is lower in January 2024 compared to January 2023, as consumers tighten their budgets after Christmas and Black Friday sales last year.
Despite this widespread slowdown in business turnover, industries such as travel, hospitality, and entertainment may perform relatively better than other consumer goods sectors.
Meanwhile, essential industries benefiting from a growing population, such as healthcare and education, continue to demonstrate relatively stronger performance.
3. Cash Flow For Business Remains Steady
As the economy experiences fluctuations, both business turnover and expenses are following suit.
Nevertheless, there is an improvement in cash flow since last December. It is predicted that the trend will persist.
This reflects businesses’ adaptability amidst the economic slowdown throughout the year.
Westpac’s Business Snapshot shows that apart from achieving cost efficiencies, businesses have made efforts to reduce debt where feasible. This indicates how business decisions, to mitigate the impact of higher interest rates on debt repayments, have contributed to enhancing resilience.
Considering this broader perspective of business cash flow, there are improvements across most industries.
Retail and wholesale trade, manufacturing, and business services demonstrated particularly strong performances. On the other hand, property services, education, and construction experienced a decline in cash flow.
4. Business Owners Are Feeling Optimistic About The Economy Despite Challenges
Despite uncertain economic conditions, businesses maintain a cautiously optimistic outlook.
SMEs anticipate that the peak of cost pressures is already behind and foresee a stabilisation of turnover, followed by growth as we progress into 2024.
The presence of robust financial saving strategies offer businesses substantial grounds for optimism.
As previously noted, businesses have accumulated a significant amount of cash and have made efforts to reduce debt wherever feasible.
Moreover, business leaders remain hopeful regarding turnover prospects for this year.
According to a recent survey of Australian business leaders, 66% anticipate an increase in their business’ sales over the next 12 months.
5. Important Policy Changes Will Affect How Businesses Operate
Changes in potential policies can impact business expenses and influence decisions regarding team expansion, facility upgrades, and investments in technology.
The federal government has presented numerous competition policy reforms as beneficial and cost-effective advancements for the small business sector.
This includes the prohibition of unfair contract terms and an $8 million funding allocation to address small business payment delays.
Additionally, last year’s enactment of industrial relations reforms is anticipated to be positively received by small businesses.
This includes allowing employees, unions, and host employers to request the Fair Work Commission to ensure that labor-hire workers are compensated in accordance with the host’s enterprise agreement or relevant award.
These regulated measures will be implemented from November 2024, with small businesses having fewer than 15 employees exempted.
The federal government believes that these changes in policy will enhance employee rights and equitably increase their wages.
6. The Use Of Generative Ai Is Becoming More Prevalent
AI and machine learning have been impactful for over a decade. They are seamlessly integrated into the products and services offered by major companies.
Now, the emergence of generative AI empowers almost every business to create and automate customer experiences, as well as optimise internal operations.
Small business owners highly anticipate the integration of AI-powered financial planning and analysis tools into their accounting platforms.
These tools are set to connect with various business applications, playing a pivotal role in management and navigating potential economic impact on small businesses in 2024.
While some business owners express concerns regarding potential threats, others strongly believe in promising opportunities that this new technology can offer, provided that they have access to the necessary tools and support to fully leverage its capabilities.
A recent report by Deloitte Access Economics and the Deloitte AI Institute revealed that employees who utilise specific Generative AI tools on a daily basis can save 5.3 hours per week.
This significant time-saving potential could revolutionise operations for small business owners struggling with limited time and resources.
7. Cybersecurity Remains One Of The Top Concerns
Once again, cybersecurity ranks among top concerns, as its significance escalates every year.
Cybercriminals continuously seek new and more sophisticated methods to bypass existing safety measures.
The Australian Signals Directorate’s Annual Cyber Threat Report for the previous financial year revealed a staggering 23% surge in cybercrime reports, with email compromise, business email compromise fraud.
Online banking fraud is identified as the primary challenges impacting businesses.
With business activities increasingly shifting online each year, this threat is likely to continue its upward trajectory.
8. Small Businesses Are Placing Greater Emphasis On Sustainability
Research continues to show that consumers increasingly prefer companies with a solid commitment to reducing their environmental footprint.
Despite increasing cash flow pressures, a majority of small businesses consider sustainability as a high or somewhat of a priority in 2024.
Therefore, SMEs are looking at ways to be more sustainable through their practices and suppliers.
What Can Businesses Do To Cope With These Economic Impacts In 2024?
As we find ourselves in the early months of 2024, it is imperative to adopt a proactive approach to ensure success despite the economic impact on small businesses.
The dynamic nature of the business landscape, together with the effects of global events, calls for the need for small businesses to embrace strategic foresight and proactive measures.
SMEs that proactively assess market trends, anticipate potential disruptions, implement agile strategies, and proactively manage business finance tend to be better positioned to navigate uncertainties and capitalise on emerging opportunities.
This forward-thinking approach is crucial for fostering adaptability, enabling businesses to respond to changing customer preferences, industry dynamics, and external factors.
Here are some suggestions for SMEs to stay afloat during this challenging time in 2024:
- Conduct a thorough expense evaluation
- Implement proactive financial planning
- Establish a resilient budget
- Stay on top of taxes and invoices
- Manage debt effectively
- Negotiate with suppliers for more favourable payment terms
- Seek guidance from specialised financial advisers or consultants
- Adopt new technologies
Conclusion
The economic landscape for small businesses in 2024 is undeniably complex and challenging. As we delve into the economic impact that inflation, interest rates, and consumer sentiments have on small businesses, it becomes evident that adaptability and proactive strategies are the keys for navigating this uncertain time.
In the face of economic uncertainties, small businesses must not only adapt to survive but embrace a proactive mindset that positions them for success.
By having a concrete financial management plan and leveraging existing resources, small businesses can not only weather economic storms but also emerge stronger and more resilient in the years ahead.
