Despite all the doom and gloom predictions, COVID was really not that bad for many Australian small businesses. Whilst some industries like travel, entertainment and hospitality were decimated, on the whole, Australian SMEs rode the COVID wave and came out the other side. Employees quickly adapted to work from home and propped up by Job Keeper, government grants and with tax collections put on hold the extra stimulus packages propped up zombie businesses that would have otherwise closed. But the tide is now turning.
Inflation is rising, staff costs are higher with an increase to the minimum wage and a severe skill shortage, the SME Recovery Loan scheme has ended and the ATO is back collecting tax liability including the debt accrued over the last two years. COVID is rearing its head again and business insolvencies are starting to rise.
The tide is turning.
If you thought the last two years were difficult for business to navigate, strap yourself in for what’s to come. The next two years are going to be brutal.
The Government has spent so much money keeping business afloat during COVID that it’s now come to a screaming halt as we enter a recession. With national debt sitting at more than $800 billion they have no more money left to throw. There’s nothing left in the piggy bank.
In the past six months, here at OptiPay, we’ve noticed it’s taking businesses longer to pay their bills – the average days outstanding has increased by a week. It’s one of the first signs that businesses are under mounting financial strain – to maintain cashflow they’re having to be selective about the timing of when they pay debts.
It’s harder for small businesses to get a loan from the bank with risk-averse lenders pulling back. Even non-bank funding options like us are being more prudent in who we take on board as clients. The options for SMEs to access working capital have been significantly reduced and we’re going to start to see a knock-on effect of that down the whole supply chain.
We’re already seeing the start of a wave of insolvencies with the construction sector first to fall. June data from CreditorWatch points to the start of deteriorating conditions. Trade payment defaults are on the rise – a leading indicator for businesses in trouble.
So, how does this grim forecast affect the average Australian? Small business is the backbone of our economy. SMEs provide jobs for 70 per cent of our labour force. If they can’t access funds to grow and overcome cashflow problems one of the first costs to be cut will be staff. Average Australians lose their jobs as inflation and interest rates rise. And that’s when we’ll start to see the true pain of a recession.
If the Government had access to a crystal ball at the start of COVID and could see what lay ahead I doubt they’d do things the same way. We’re entering stormy waters but the life rafts were deployed too early. Only businesses that are profitable, that have a legitimate and successful business plan and demand for their product or service are going to survive.
