Small businesses less optimistic about financial health

Less than half (45 per cent) of small-business decision-makers in Australia would describe their business’s financial health as “good” or “very good”, according to results of a survey released by credit reporting agency CreditorWatch.

CreditorWatch’s Business Sentiment Survey, conducted by YouGov, collated responses from 1,016 decision-makers at Australian businesses, from 22–31 May 2024, and the results shine a light on how organisations of different sizes are responding to economic pressures and market dynamics.

By comparison to small-business decision-makers, 82 per cent of decision-makers at large businesses and 76 per cent of decision-makers at medium-sized businesses rated their businesses’ financial health as “good” or “very good”.

According to the survey, only 31 per cent of small-business decision-makers said the current climate for business was “good” or “very good”, compared to 70 per cent for large and 60 per cent for medium-sized businesses.

In June, CreditorWatch released data showing the number of business insolvencies had increased 34 per cent year on year and was 41 per cent higher than the pre-COVID-19 record.

At the time, the credit reporting agency said this was driven primarily by small businesses, which were entering external administration at a rate of 1.16 per cent as of May 2024, compared to a rate of 0.51 per cent external administration in May 2023.

Patrick Coghlan, CreditorWatch CEO, said the results of the Business Sentiment Survey highlight a contrast in optimism between small, medium, and large businesses, with smaller businesses tending to feel the brunt of economic pressure.

“Businesses are really hurting. They are experiencing a combination of rapid price increases, a series of interest rate hikes, and rising wage costs. On top of that, cost-of-living pressures mean that consumer demand has fallen away,” he said.

“Our June Business Risk Index showed invoice values have plummeted by 49.9 per cent over the past year, and payment defaults are rising. Industries like hospitality are hit hardest due to their reliance on discretionary spending.

“Smaller businesses, operating on tighter margins and with depleted cash reserves, are struggling the most.”

Jonathan Streater, director at independent mortgage broker JEM Finance Group, said small businesses often bear the brunt of economic forces.

“Small businesses are being impacted by the uncertainty in the market, higher wage costs and general cost of living,” Streater said.

“Small businesses are more susceptible to the market conditions in our current environment. It is harder for these small businesses to absorb some of these cost increases, which is ultimately impacting their bottom line profit.”

Streater said brokers can help by understanding their clients’ full business and personal financial position.

“They [brokers] really need to go back to basics with fact-finding and asking [their small-business clients] targeted questions about their business,” Streater said.

“This is where the expert advice of an experienced finance broker will add significant value.”

[Related: Business insolvencies reach record high: CreditorWatch]

Written by Ben Squires

Last Updated: 01 August 2024

Published: 31 July 2024