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Finding opportunities in 2024’s biggest challenges

ANZ Financially Ready

2024-02-19 05:30

Small and medium-sized businesses reported solid performance through 2022 and 2023; but with economic conditions expected to get tougher in 2024, business owners will need to adapt to new challenges and take advantage of growth opportunities.

It’s been a tough few years for small and medium enterprises (SMEs). While the COVID-19 restrictions that shuttered most (temporarily or otherwise) are now a blur in the rear-view mirror, the changes triggered by the virus are still affecting many SMEs.

Supply chains have been under pressure, prices of goods have risen, interest rates have climbed to head off inflation, and labour market trends accelerated rapidly.1

Despite this difficult environment, most Australian SMEs reported solid performances in 2023 – noting that while it wasn’t as strong as 2022, there was still some steam in the economy.2

So, what can businesses expect in 2024?

Although Australia’s economy has proven remarkably robust in recent years, it does appear to be slowing up, and the driving factors (inflation, interest rates, and labour) aren’t expected to let up soon.

Against this backdrop, we expect SMEs will face four main challenges. Here, we break them down and explore ways to overcome each.

1. Economic growth tipped to slow

ANZ expects Australia’s economy to slow up in 2024, with only modest movements in inflation and interest rates. In line with this slowdown, it’s possible that demand for goods and services will be unstable, unpredictable, and unreliable.3 For SMEs, this can muddle forecasting and budgeting and potentially hurt cash flows.

To meet these demand wobbles, SMEs may need to consider their marketing strategy, and look for creative ways to consistently attract customers throughout the year. Importantly, this does not need to be an expensive undertaking.

Social media and digital advertising channels are often very effective avenues for Australian SMEs. Although it can be frustrating to stay on top of changes to algorithms or Google’s search rankings, these channels allow business owners to turn advertising on and off as necessary.

In many instances, there is a strong correlation between a digital advertising campaign and a lift in enquiries and sales.4 This could provide business owners with the flexibility they need to flatten the peaks and troughs in client demand during the year.

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2. Business costs are higher than ideal

Over the last 12 to 18 months, talk of a cost-of-living crisis has dominated news headlines and political debates throughout the country. Higher energy, rent, and insurance costs have put pressure on working Australians, many of whom are now tightening the purse strings and squirrelling away what extra cash they have on hand.

For many SMEs, this has meant a reduction in sales. However, this is not the only way these price hikes are being felt. Business owners, like consumers, have their own energy, rent, and insurance costs to consider. Add to this the recent tightness in labour markets bidding up staffing costs, and SMEs aren’t far off facing their own cost-based crisis.5

With these additional expenses weighing on most businesses, those who can effectively cut costs will be able to pave a pathway for growth.

One way business owners can achieve this is through technology, particularly following the advent of ‘Software-as-a-Service’ (SaaS), such as Cloud-based accounting software or CRM systems.  

Previously, rolling out new technology was a significant capital expense to the business, and typically locked them into whichever solution they’d chosen for an extended period of time.

By using SaaS solutions, business owners can scale their technology stack up and down as needed while still benefitting from productivity gains, potentially negating the effects of those higher business costs. Additionally, SaaS can save business owners the capital expenditure of purchasing their technology, with subscription fees then listed as operating expenses.

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3. Matching staffing to demand is challenging

Australia’s labour market is incredibly tight at present, with the unemployment rate now at multi-decade lows and participation at record highs.6 This tightness is helping to push wage prices up at pace with the ABS Wage Price Index, which recorded its largest quarterly growth in its 26-year history in the September 2023 quarter.7

The index clipped up 1.3 per cent during those three months, bringing the annual wage increases to 4 per cent.8

In the private sector, annual wage growth was 4.2 per cent for the Sept 2023 quarter – its highest since December 2008.9

As a result, businesses will need to be strategic about their staffing needs. Attracting and retaining staff can be a challenge for SMEs on tight budgets, even more so as wages increase. However, many SMEs have found success by offering competitive lifestyle factors, rather than financial benefits.

This can include more flexible working arrangements, or even health and wellbeing programs. According to the Australian Institute of Health and Welfare, although Australians’ mental health has improved since COVID-19, it is not back to its pre-pandemic level. This could make work-based programs focused on these issues particularly attractive.

Another option for SMEs concerned by unstable customer demand could be to look for freelancers or contractors who may be able to step in when required. This would enable businesses to keep their core labour costs down, and increase them only when there’s a profit opportunity.

4. Access to finance harder to find

Although inflation seems to have passed its December 2022 peak, it’s still sitting at an uncomfortably high level.10 In a bid to cool the economy and curb these higher prices, central banks around the world have hiked interest rates. In Australia, rates are at the highest levels seen in over a decade.

Higher interest rates have done little to dampen SME’s borrowing behaviour to date. However, with rates at current levels, SMEs may have a harder time getting the finance they need to grow.

"We are still open for business and here to support and lend to customers,” said ANZ’s General Manager for SMEs, Paul Presland, "and knowing what your banker is looking for can make financing more straightforward. By using accounting software – and maintaining your books well – you may even be able to take advantage of our new, streamlined credit decisioning process".

“We can use real-time data from eligible accounting programs to quickly make lending decisions based on your current financial position, rather than relying on historic data which may not paint the most accurate picture of your business,” Paul added.

If your accounts aren’t logged in one of these programs, or your lending needs are more complicated, you may need to speak with a banker. The more detail you can provide to your banker about your business and the purpose of the loan, the easier it will be for them to make a decision.

Try to include cashflow forecasts, quotes for any work being done, and your current expenses within your business plan. This will better enable you to access the money you want, and not just the money lenders think you need.

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Finding opportunities in 2024’s biggest challenges
Business specialist
ANZ Financially Ready

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This is general information only, so it doesn’t take into account your objectives, financial situation or needs. ANZ is not giving you advice or recommendations (including tax advice), and there may be other ways to manage finances, planning and decisions for your business.

Read the ANZ Financial Services Guide (PDF) and, if applicable, the product Terms and Conditions. Carefully consider what's right for you, and ask your lawyer, accountant or financial planner if you need help. 

Any tools, checklists or calculators produce results based on the limited information you provide so they are an estimate or guide only. As they are incomplete, they are not a substitute for professional advice.

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1. National Skills Commission, ‘The transformation of Australia’s labour market’, Australian Government, November 2022, accessed 2 February 2024

2-5. Cameron Research, ‘The Cameron Panel: SMEs Through Time: 2023’, Cameron Research, December 2023, accessed 1 February 2024

6. Deloitte Access Economics, ‘Deloitte Access Economics Employment Forecasts’, Deloitte, 22 November 2023, accessed 1 February 2024

7-9. Australian Bureau of Statistics, ‘Quarterly wages growth highest in WPI history’, Australian Bureau of Statistics, 15 November 2023, accessed 1 February 2024

10. Dr J Chalmers, ‘Inflation moderates to two-year low’, The Treasury, 31 January 2024, accessed 1 February 2024