Sydney, June 17: Nearly two-thirds of Australian SMEs are operating with less than two months’ worth of cash reserves, according to new research by YouGov, commissioned by Prospa, Australia’s leading online small business lender.
The survey reveals a concerning financial state for many small businesses, with over one in five (22 per cent) reporting they have no cash reserves at all.
An additional 18 per cent have less than a month’s worth of expenses in reserve, and 21 per cent expect to run out within 1-2 months.
The RBA’s decision to pause rate increases in May provided temporary relief, but the possibility of further hikes later this year means businesses need to brace themselves financially.
“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,” said Beau Bertoli, Co-founder and Chief Revenue Officer of Prospa.
He highlighted that the retail and hospitality sectors are particularly struggling due to decreased discretionary spending, supply chain issues, and rising fuel and energy costs.
Despite these challenges, Australian small business owners are proving resilient.
More than three-quarters (77 per cent) of business owners and decision makers are either already implementing or planning to adopt strategies to manage rising costs over the next year.
Strategies include reducing non-essential expenses (43 per cent), increasing prices (38 per cent), and boosting technology adoption, especially among metro-based businesses (17 per cent).
“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 the productivity – and therefore profitability – of the business. Our data shows business owners know this too and they’re taking the bull by the horns to ensure they not only survive but thrive in the current climate,” Bertoli said.
However, the financial strain is also taking a personal toll on SME leaders. Over three-quarters (77 per cent) report feeling the pinch personally.
Nearly half (46 per cent) have reduced their own income, and 31 per cent have dipped into personal funds to cover business expenses.
Measures such as switching to lower-cost suppliers (19 per cent), reducing personal pay or bonuses (12 per cent), and cutting operating hours (11 per cent) are common.
The strain is impacting mental health, with 44 per cent of SME leaders experiencing increased stress or burnout and 29 per cent having less time for friends and family.
“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. 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,” Bertoli added.
This study, conducted online between 11th and 17th April, involved a nationally representative sample of 506 Australian business owners and primary decision makers of businesses with fewer than 50 employees.
YouGov designed the questionnaire in consultation with Prospa.
The data was weighted by business size and location to be representative of the Australian population aged 18+ who are business owners or primary decision makers of businesses with fewer than 50 employees.
Belinda Keehn, Principal Creative Designer, founder, and owner of BJ’s PJs, shared her personal experience: “As an Australian small business owner, the current economic climate is becoming increasingly tough to navigate. Rising costs and fierce competition from overseas have meant less business is coming through the door, making it harder than ever to keep the lights on. While BJ’s PJs boomed during the pandemic in line with the unprecedented appetite for loungewear, consumers are spending more on household bills and less on themselves.
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.
As the financial pressures have mounted, the knock-on impact on my personal life has been profound. 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.
In the near future, I hope to see more government-led support for the small business community so we can continue to do our part to contribute to the economy.”
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