Australian SMBs set to face rising challenges in 2025

Small businesses in Australia are anticipated to face a series of challenges in 2025, as revealed by Alon Rajic, Founder of Small Business Loans Australia, based on recent research.

The rate of business failures in Australia has been steadily climbing, reaching 5.04% in October 2024 and nearing the peak of 5.08% observed in 2020. This trend indicates that many Australian small to medium-sized businesses (SMBs) will encounter significant hurdles as they move into the new year.

Rajic emphasised the critical situation that SMBs are confronting: "Small to medium-sized businesses make up 98 per cent of all businesses in Australia, and they are increasingly doing it tough. As we head into 2025, they will likely continue suffering resource shortages, reduced customer spending and continued inflation, all of which strain limited resources. Other challenges like bank fees on international transfers and cyberattacks can be reduced through preparation, awareness and allocation of resources. It is important that SMBs prepare for these hurdles and know how to receive support from either private financial providers or the Government."

The research conducted by Rajic identified seven major challenges that SMBs will face in 2025. The first is tighter employee laws, which have created resource strains for small businesses due to industrial relations reforms. These reforms include a 5.2% increase in the national minimum wage and various new rights for employees, such as flexible work conditions and protections against pay secrecy clauses. According to studies, many SMBs find these legislative changes complex and challenging to incorporate, with some being completely unprepared.

Another critical issue is inadequate government support. The rising wages, coupled with reduced customer spending and ongoing inflation, have left many SMBs requiring more financial assistance. A survey revealed that 94% of small-to-medium businesses are seeking additional governmental support, with 41% needing financial aid specifically to meet wage increases.

Increased competition is also forecasted as more Australians consider starting additional businesses or side hustles. This rise in entrepreneurial activities is largely motivated by the need to boost incomes amidst inflationary pressures, which will intensify competition for existing small businesses.

Late payments are another ongoing problem impacting cash flow for SMBs. In 2024, nearly half of affected businesses were forced to reduce their own income, and some even resorted to using personal funds to cover costs. Notably, 20% of SMBs report having no cash reserves, making them particularly vulnerable.

Cyberattacks targeting small businesses represent another significant threat. Accenture's Cost of Cybercrime Study notes that 43% of cyberattacks focus on SMBs. Many small businesses invest less than AUD $500 annually on cybersecurity, which leaves them at risk.

The burden of financial service fees also affects SMBs, particularly in international trade. Many overpay by conducting trades through the big four banks, incurring high exchange rate mark-ups and fees. This research uncovered that such businesses could save considerably by opting for non-bank transfer providers.

Alon Rajic's findings underscore the need for SMBs to prepare for these various challenges by seeking appropriate support and making resource allocations to best withstand the predicted difficulties of 2025.