‘Perfect storm of pressures’ hits small business: COSBOA

Australian small businesses are being impacted by the long tail effects of COVID-19 through increased costs and decreased revenue, according to a report by the Council of Small Business Organisations Australia (COSBOA).

The Small Business Perspective Report 2023 found while some sectors were disproportionately impacted by extended lockdowns and restrictions, all businesses are now collectively experiencing financial strain “due to a perfect storm of global and domestic pressures.

Almost all industry leaders surveyed agreed that costs are now a more significant concern for small businesses than they were 12 months ago.

“Most industry leaders report significant increases in the cost of energy, labour, insurance and rent over the past 12 months,” the report said.

“Cost of living pressures fuelled by successive interest rate rises have also significantly reduced consumer discretionary spending and overall revenue in almost all sectors.”

Interest rate rises

Successive interest rate rises have impacted businesses across all sectors, the Commonwealth Bank-sponsored report stated.

“Industry leaders agreed that cost of living pressures, fuelled in large part by rising interest rates, have significantly impacted small businesses in their industry over the past 12 months,” the report stated.

The biggest risk of continued interest rate rises for small businesses identified in the report is their negative impact on consumer discretionary spending.

“Small business mostly work on small margins, and the continued effect of limiting people’s ability spend is either that many small businesses will reduce their offerings to the bare essentials, or that they close,” the report said.

Increasing energy costs

Rising energy costs are another significant concern for small business in most sectors.

More than two thirds or industry leaders reported energy costs having significantly increased for small business in their sector over the past 12 months.

Efforts to improve energy efficiency were perceived to be too costly or difficult for business owners to implement, given their thin margins and lack of time.

Small businesses across hair and beauty, childcare, retail, engineering, ICT, hospitality, manufacturing, and transport and logistics industries were the most impacted.

Labour costs

Labor shortages and increasing wage entitlements are also driving up the cost of production for many small businesses with a third of industry leaders identifying labour costs as the single biggest cost increase for their industry.

“Additional wage increases were viewed by leaders in some sectors as unsustainable in light of labour shortages and already rising costs elsewhere,” the report said.

“Continued wage increases are not viewed negatively in and of themselves, but as something that should be coupled with flexibility in industrial relations laws and investments to improve productivity.”

Labour shortages

Skilled labour shortages are a particularly pertinent issue for small businesses.

“These shortages were associated with broader labour market supply challenges including access to training, and were viewed as contributing to price rises and the broader inflation challenge,” the report said.

The report also found that small businesses are struggling to compete against larger organisations for skilled labour.

“Industry leaders mentioned that skilled workers are in a buyer’s market, meaning that they have greater choice than usual over where they work,” the report said.

“Larger companies which have greater capacity to scale their salary offerings have the advantage over small businesses in hiring and retaining talent as a result.”

Significant rises in insurance costs

Extreme weather events have led to significant increases in insurance costs for almost all sectors.

The report noted small business owners often hold several forms of complicated insurance which decreases both the affordability and accessibility of being adequately insured.

“With many facing financial strain, small businesses could increasingly view insurance as an option rather than a necessity.

“Industry leaders viewed this as a particular risk which points to the need to reduce insurance costs and make purchasing different forms of insurance easier for small business owners.”

Supply chain pressures still impacting businesses

Global and domestic supply chain pressures are also still impacting most industries, with almost all industry leaders stating that these costs had significantly risen in the past 12 months.

Service industries dealing with stock have been particularly impacted, including both retail and the health and wellness sectors, according to the report.

“The costs of logistics, including freight have had a growing impact on small businesses in several specific industries,” it said.

“More than a third of industry leaders labelled these costs a rising concern over the last 12 months. In addition to service industries, the agricultural and farming sectors have also dealt with the impacts of increasing freight costs.”