Why Small Businesses Are Hurting In 2023?

The growing cost of living may make it difficult for Australian small businesses to reach their sales targets. Inflationary rates in Australia, New Zealand, and the United Kingdom are at their highest in more than 30 years. As a result, small business owners and their employees are confronting an unprecedented inflationary shock.

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), said that the organization had cut its forecast for global growth to 2.9% in 2023. According to the IMF, the risk of financial instability and recession is increasing.

Now, in 2023 the aftershocks of the Ukraine-Russian war and global inflation are creating a huge dent in the local businesses in Australia. Amongst other commodities, fuel prices are at an all-time high.

1. Effect of Fuel prices on local businesses

According to a new study, rising electricity rates are affecting 66% of small companies across Australia, with the Federal Treasury estimating a 30% increase this year.

25% of small businesses reported that growing power rates have a bigger impact on profitability than rising fuel costs and trading stock prices.

“Australia’s small company community is suffering escalating prices across a variety of fronts,” said Cameron Poolman, CEO of OnDeck Australia. Nonetheless, businesses can take steps to limit the impact of rapidly growing electricity bills, which can be a considerable overhead.”

The scenario is expected to persist for some time, therefore small businesses are unlikely to be spared from increased electricity expenses anytime soon.

According to OnDeck Australia, these rate increases come at an undesirable time because many Australians are about to encounter a “mortgage cliff,” which is the end of a relatively low fixed-rate house loan and the subsequent transition to a much higher reversion rate.

2. Workforce Gaps

The impact of higher inflation rates follows the Albanese government’s announcement of an increase in paid parental leave rights – one of the key proposals from the recent Jobs Summit. Beginning in 2024, Prime Minister Anthony Albanese has declared an increase in leave for new parents from 18 weeks to 24 weeks.

Now when the leaves are increased it becomes even more difficult for local businesses to run. As they have a considerably lower workforce than the corporations. So, filling these gaps will be extremely difficult for them and even financially straining.

Small businesses will continue to suffer the brunt of all of these band-aid solutions. There is still significant disruption in parts of the global supply chain, large knowledge gaps in leadership and technology, and a massive ‘talent debt’ after many tourist and hospitality workers reskilled in other fields.

3. Way Out

Inflation remains high, reaching 9.2% in January 2023. Rising energy prices, loan rates, and labour costs are putting a strain on SMEs. Strategic small-business owners are looking for ways to reduce energy costs by installing renewable assets that create their clean power.

Second, there has been a considerable push in recent years in the commercial world toward decarbonization. Two factors are driving this: public opinion and support of companies based on their environmental credentials, and risk concerns. Businesses that do not have a plan to address climate change have a lower ESG profile, which implies that potential investors perceive them to be riskier.

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Also Read: Why Do You Need A Small Business Advisor?