Slow recovery for small businesses as sectors struggle

Australia’s small businesses are facing a tough road to recovery in the current economic climate according to a report from Square and the Council of Small Business Organisations of Australia (COSBOA). The report highlights the challenges small and micro businesses are enduring, revealing a “two-speed” economy, where small businesses are struggling to keep pace with their mid-market peers.

According to data from millions of transactions processed on Square, Australian small businesses have experienced slower recovery rates in the first half of 2024 compared to mid-sized businesses. This trend is evident across various sectors and regions, with small businesses in cities like Sydney and Melbourne lagging behind those in Brisbane, Adelaide, and Perth.

Mark Lamantia, Executive Director at Square Australia, notes the resilience and adaptability of small businesses during these challenging times. “There’s no doubt that small businesses have been navigating an incredibly difficult period, but what cannot be underestimated is their adaptability and resilience in the face of adversity, and utilising technology to overcome economic hurdles.”

Key points

Two-speed recovery: Small businesses are recovering more slowly than mid-market peers, with significant variation across sectors and locations.
Cost pressures mount: Rising costs in utilities, supplier expenses, and insurance are squeezing small business margins.
Government support needed: Business owners call for more policy support, including technology incentives and access to low-interest loans.

A two-speed business recovery

The report paints a stark picture of the uneven recovery among small businesses. While medium-sized businesses dipped slightly into negative territory in the second half of 2023, they managed to bounce back to positive growth in early 2024. On the other hand, small businesses have seen a longer period of negative growth, particularly in sectors like retail and professional services.

Small retailers saw positive growth during the December-January holiday period yet have struggled to maintain momentum through the rest of the year. Meanwhile, hospitality businesses have defied the odds, experiencing a steady increase in spending despite broader industry challenges.

Spending patterns varied significantly by sector.

Healthcare and fitness businesses displayed steadier spending compared to the more volatile beauty and professional services sectors. Hospitality, often seen as one of the hardest-hit sectors, showed resilience, with spending peaking in the April 2024 quarter.

Rising business costs squeeze margins

As if the slow recovery wasn’t enough, small business owners are also grappling with rising operational costs. According to the report, 73 per cent of small business owners feel increased pressure from rising utility bills, while 65 per cent are struggling with higher supplier costs. Insurance premiums, government levies, and occupational costs such as rent and mortgages are also weighing heavily on small businesses.

Luke Achterstraat, CEO of COSBOA, suggests there is a need for targeted policy solutions to help small businesses manage these pressures.

“Every small business owner faces a unique situation – a distinct set of challenges and opportunities. This latest report from COSBOA and Square highlights this reality. ‘Small business’ isn’t one homogenous mass and this report underlines the need for policy solutions to be appropriately nuanced, tailored and targeted if small businesses are going to feel a positive impact.”

In response to these mounting challenges, nearly half of small business owners have increased their prices in the past year, while one in five have streamlined their operations and changed their approach to marketing or social media to stay afloat.

Government support needed to boost recovery

With many small business owners feeling the pinch, there’s a growing call for government intervention to ease the burden. Nearly half (46 per cent) of small business owners are seeking certainty around the future of the Instant Asset Write-Off, while 42 per cent want more incentives to adopt technology, particularly in areas like artificial intelligence, digital payments, and cyber security. Additionally, 44 per cent are looking for greater access to low-interest loans and grants to support sustainability and innovation.

As Achterstraat points out, supporting small businesses isn’t just good for the businesses themselves—it’s crucial for the entire Australian economy. “When small businesses succeed, the entire Australian economy benefits.”

You can read the full report here.

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