ASBFEO’s small business indicator reveals decline in conditions
The Australian small business environment has fallen well below the long-term average, according to the Australian Small Business and Family Enterprise Ombudsman’s new Small Business Pulse.
The Small Business Pulse recently launched by the Australian Small Business and Family Enterprise Ombudsman’s (ASBFEO) ‘Pulse’ has shown that conditions over the last 12 months for small businesses have deteriorated by 3.5 per cent.
ASBFEO Bruce Billson said the ‘Small Business Pulse’ is an innovative combination of non-traditional and traditional data to produce an indicator of small business health.
Billson said he designed the pulse to act as a ‘health check’ for the Australian economy.
“Small business is the beating heart of our communities and our economy,” he said.
“The Pulse is a world-leading index that provides an overall perspective of the challenges and opportunities for small businesses, drawing in sentiment, operating conditions, how business owners are responding to these conditions and the ability to transform or grow a business.”
The Small Business Pulse captures three broad areas to reflect the small business environment for SME owners including sentiment, business transformation and business operations.
For August 2024 the pulse dropped by 0.6 per cent, the eighth consecutive fall.
According to the indicator, this is what resulted in the 3.5 per cent decrease in the last 12 months.
Billson said this fall was caused by the current economic climate, as well as post COVID-19 effects.
“This represents a modest decline over recent quarters after the stark deterioration caused by an end of covid-support and covid-amplified changes in the structure of the economy,” Billson said.
“Including inflationary pressures, skills shortages, supply chain challenges and pronounced margin squeeze and the series of interest rate increases.”
Higher interest rates impact small businesses in their costs of financing as well as implicating spending, preferences and confidence of customers.
All SMEs are aware there is no substitute for customers in determining business success, Billson said.
Results demonstrated the concerns for small business owners about their business viability have increased.
These include business owners who have recognised they’re in financial distress, as well as those who have already began considering their options.
Billson said a concerning number of small businesses are experiencing ‘crushing’ debt with insolvencies at a record high.
“It’s a real gamble, with the value of debts owned by small businesses increasing over the last year and around half of small business loans secured by the family home,” he said.
“Business insolvencies are rising and small businesses are increasingly concerned that other businesses that owe them money are insolvent.”
The Pulse also reflected payment disputes now account for 42 per cent of all small business disputes, which has risen from 36 per cent in the last financial year.
Results showed fewer small businesses are enquiring about expanding as they struggle to stay viable, as well as fewer enquires about advertising, hiring staff and expanding offerings.
Billson said these challenging conditions have affected optimism in various areas, however early indicators suggest that the next Pulse update due in November may improve.
“Queries from people considering taking the leap into business have remained relatively high since February,” Billson said.
“Similarly, there has been a rise in small business owners interested in growth ambitions and seeking business coaching and mentoring.”
Although optimism is rising in start-up businesses, the current economic market will continue to present challenges which will likely offset this positivity, according to the Pulse.
