Small Business is on the brink of a cash flow crisis

New research from small business lender Prospa, highlights the severe financial and emotional challenges Australian small and medium-sized businesses face.

The study, conducted by YouGov, reveals that cost of living pressures and high inflation are significantly impacting the nation’s small businesses.

Business owners depleting cash reserves

The research indicates a worrying trend among business owners with one in five (22 per cent) of small business leaders reporting that their business has no cash reserves at all. Additionally, 18 per cent are surviving on less than a month’s worth of expenses, and 21 per cent predict their reserves will run out within the next one-two months.

Beau Bertoli, Prospa’s Co-founder and Chief Revenue Officer, comments, “The current economic conditions are such that small businesses are getting further away from the three to six months’ cash reserves recommended to cover operating expenses.

“While Australia’s small business community has jumped hurdle after hurdle in recent years, the current economic environment is raising the bar higher than ever before.”

Personal sacrifices becoming the norm

The financial strain is not limited to business finances but extends to the personal finances of many small business owners. Nearly half (46 per cent) have reduced their own income to cope with rising business expenses, and three in ten (31 per cent) have dipped into their personal savings. Belinda Keehn, Principal Creative Designer and owner of BJ’s PJs, shares her experience: “When my cash reserves dried up, I made the tough decision to use my personal savings to pay off my business’s expenses. Since 2022, this equated to over AUD$100,000—all of my savings. I also haven’t paid myself a salary in the same period and am still unsure when I will be able to do so.”

Resilience and adaptation

Despite these challenges, Australian small business owner are demonstrating remarkable resilience. More than three in four (77 per cent) are adopting new strategies to manage the impact of rising costs. Among these strategies, 38 per cent plan to increase their prices within the next 12 months, and 43 per cent intend to reduce non-essential expenses. Bertoli highlights the role of technology in this resilience: “Technology will be a crucial lifeline for small businesses as they map out their cashflow over the coming months. Streamlining manual backend tasks and harnessing technology to create admin efficiencies will have a direct impact on productivity—and therefore profitability—of the business.”

Emotional toll of the financial burden

Nonetheless, the economic pressures are taking a significant emotional toll on business owners, with 44 per cent reporting increased stress or burnout. Nearly a third (29 per cent) say they have less time to spend with friends and family due to the demanding economic environment. Keehn shares: “The increased stress of trying to keep the business afloat has led to burnout, which becomes a vicious cycle that is hard to get out of.”

The research highlights the critical need for Australia’s small businesses to assess the financial support available to them and take necessary steps to ensure their survival. Bertoli agrees the situation requires urgent action.

“With cash reserves down and the personal impact becoming increasingly evident, it’s critical that businesses assess the financial support available to them and access what they need to put themselves back in the race.”

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