Australian small to medium-sized enterprises (SMEs) have encountered significant challenges in 2024, with business failure rates climbing to 2020 levels. Small Business Loans Australia has identified seven of what it considers to be the biggest challenges facing SMEs in 2025. These are:
Tighter employee laws
Recent industrial relations reforms, including a 5.2 per cent increase in the national minimum wage; permitting ‘employee-like’ contractors to seek Commission intervention for unfair contract term disputes; not permitting pay secrecy clauses to address gender pay gap; multi-employer bargaining; giving employees the enforceable right to seek flexible working conditions; and 10 days’ paid family and domestic violence annual leave, have increasingly stretched resources of SMEs, making it difficult for them to adapt resources to growth and changing markets. A study found that over half of Australian SMEs believe that the Industrial Relations Reforms will make payroll procedures more complex, with many completely unprepared for the changes. 40 per cent also found it difficult to keep up with legislation and compliance obligations.
Lack of resources
43 per cent of SMEs consider the cost of hiring talent too much, and a further 47 per cent find the hiring process too lengthy. 25 per cent of SMEs indicated that lack of time and capacity was the main reason they were unable to adapt new technology into their business. Despite this, Small Business Loans Australia found that 60 per cent of all Australian businesses are already using AI, or planning to integrate AI in the next two years. SMEs are adopting AI tools such as AI-powered reporting and chatbots with automated email replies to streamline time-consuming tasks and improve operational efficiency.
Inadequate government support
Small Business Loans Australia noted that without further government assistance, many SMEs will face increasingly difficult circumstances. 94 per cent said that they need more Government support to help them survive, and 41 per cent said they require financial support to pay wage increases. In addition, the number of companies forced into external administration grew by 39 per cent in 2023-24.
Increased competition
SMEs should expect to see more competition from an increasing number of Australians starting side hustles. In fact, Small Business Loans Australia found that one in two Australians are considering starting a small business in the next five years and a further 38 per cent would run a side hustle in addition to their main job.
Late payments
SMEs will still face cashflow challenges that are exacerbated by late payments, which affect three-quarters of businesses. To add to the challenge, many SMEs prioritise customer and client satisfaction over their own cashflow, leaving them hesitant to chase late payments
Cyberattacks
Data from Accenture’s Cost of Cybercrime Study found that 43 per cent of cyberattacks target small businesses. The number of reported cyberattacks has also steadily risen, with 16,000 more cyberattacks in 2022 than in 2019. Limited resources are seen as a major factor as 48 per cent of SMEs spend less than $500 a year on cyber security.
Overpayment in financial services fees
SMEs often lack the resources and time to shop around for better rates across financial products. As a result, according to research, most SMEs paid too much when conducting international trade through a bank. A recent Money Transfer Australia study found that 62 per cent are trading internationally through the big four banks, despite generally higher exchange rate mark-ups and fees compared to specialist money providers.
