Australian small businesses under pressure: can optimism and tech transform their 2025?

The past five years have been some of the toughest yet for Australia's 2.5 million small businesses. A combination of inflation and high interest rates has squeezed consumer spending and business budgets, forcing SMBs into insolvency at record rates.

However, the arrival of a new year brings renewed focus, hope, and optimism for business owners, according to research from Zoho. And with the recent introduction of tax cuts to stimulate consumer spending, inflation hitting a nearly four-year low, and interest rates forecast to fall next year, could a brighter financial future for SMBs next year be more than wishful thinking?

Economic pressures persist

Zoho's Financial Health of Australian Small Businesses research sought to understand the impact of long-term economic pressures, how small businesses are attempting to navigate these challenges, and how the current climate impacts their forecasts for 2025 and beyond.
Concerningly, but perhaps unsurprisingly, the research revealed that 9 in 10 small businesses - in industries including retail, construction, hospitality, financial services, education, manufacturing, and more - have seen their operating costs increase in the last 18 months. For almost two-thirds (60.8%), the operating cost increase has been up to 20%.

However, for many others, the increase has been more pronounced. One in five (20.7%) said costs surged by 21% to 40%, while  7.6% saw their costs increase by at least 41%. Familiar drivers included rising material costs, wages, rent, and utility costs.

At the same time, three in four (73.9%) said revenue had slowed. Reduced consumer activity, coupled with rising operational costs, is forcing many businesses to make difficult decisions. As a result, over three in four (78%) have been forced to increase their fees to protect their bottom line. Despite this perfect storm of pressure on their bottom-line profitability and top-line growth, our resolute, dynamic SMB community is optimistic about better times in 2025.

Optimism on the up

Small businesses are associated with traits like innovation, adaptability, and resoluteness. For all the challenges they've faced, they're feeling genuinely optimistic about 2025 and beyond. In the next 3 to 12 months, almost half of Australian small businesses believe their cash flow will improve. Longer term, 29.3% 'see a lot of growth opportunity' in the next 12-18 months, while 33.7% believe they're 'recovering nicely'.
Harnessing that optimism and turning it into practical strategies that will generate genuine, sustainable growth is essential. In 2025, technology, customers, and data will be critical.

In recent years, many small businesses have been forced to put top-line growth on pause to prioritise bottom-line sustainability. However, businesses can do both in 2025 by streamlining operations to boost efficiency. Rather than using multiple, siloed tools, small businesses must adopt an integrated approach to technology, unifying everything from accounting software and inventory management systems to data analytics and CRM platforms.

A business is more substantial when its employees work as a team, in complete unison, rather than as a series of individuals. Small businesses that can centralise all their teams, processes, and strategies into pursuing one central goal through an integrated, collaborative technology stack will be well-placed to capitalise on their optimism in 2025.
Enhancing customer relationships will be crucial in 2025, especially if forecasts that consumers could loosen their purse strings are to be believed. Building loyalty among customers is more valuable than ever. SMBs that utilise a CRM to understand customer behaviour and needs better - and use that to roll out personalised marketing campaigns, loyalty programs, or exclusive promotions to deepen customer connections - will be well-placed to incentivise loyalty and generate repeat revenue.

Underpinning all that is data, which provides insights to improve customer relationships and helps tie together a unified technology stack. Even the smallest businesses possess masses of data, which they can turn into insights and opportunities. While the world has become transfixed by artificial intelligence, one of the most tangible examples of it in a business context is BI – which it drives. Business intelligence refers to the technology and process through which businesses collect and analyse data, turning them into easy-to-comprehend insights and actionable strategies.

BI helps small businesses take the guesswork out of their operations, instead replacing it with data-driven decisions presented in reports, dashboards, and visualisations. For example, a small business could use BI to understand the ROI from particular marketing campaigns or channels or anticipated cash flow based on past performance and upcoming external factors like peak season or an election.
Through BI, businesses can better understand their internal operations, customers, and the markets and industries they operate within. Thus improving their ability to make informed decisions that mitigate challenges and pursue opportunities.

So, while many small businesses have faced challenges in recent years, there's a groundswell of optimism in the sector as we approach 2025. Economic headwinds could soon ease and be replaced by tailwinds. For the strategic small businesses that make integrated technology, customer engagement, and data analytics their priority in 2025, there's no reason that their optimism can't pay significant dividends.