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Research conducted by the founder of Small Business Loans Australia, Alon Rajic, has identified several key challenges that are forecast for small- to medium-sized enterprises (SMEs) over 2025.
The research comes as Australian SMEs continue to encounter a barrage of significant challenges, with business failure rates reaching levels not seen since 2020 (5.04 per cent of companies failed in October 2024, close to the 2020 peak of 5.08 per cent).
Rajic said: “Small to medium-sized businesses make up 98 per cent of all businesses in Australia, and they are increasingly doing it tough.
“As we head into 2025, they will likely continue suffering resource shortages, reduced customer spending and continued inflation, all of which strain limited resources.
“Other challenges like bank fees on international transfers and cyberattacks can be reduced through preparation, awareness, and allocation of resources. It is important that [SMEs] prepare for these hurdles and know how to receive support from either private financial providers or the government.”
As previously mentioned, Rajic’s research has identified seven of the biggest challenges set to hit SMEs next year.
Tightening employee laws
Due to recent industrial relations reforms, SME resources are being stretched and has made it difficult for small businesses to adapt resources to growth and an evolving market.
Rajic noted a study that found that over half of Australian SMEs believe that the Industrial Relations Reforms will make payroll procedures more complex, with many being “completely unprepared for the changes”, while 40 per cent of SMEs find it difficult to keep up with legislation and compliance obligations.
Resources at a premium, but AI will help
Reportedly, 43 per cent of SMEs consider the cost of hiring talent too much, while 47 per cent find the hiring process too lengthy.
A further 25 per cent, said they were unable to adapt new technology into their business due to a lack of time and capacity. However, a study from Small Business Loans found that 60 per cent of Aussie businesses are already using AI or have plans in place to integrate AI over the next two years.
According to Rajic, the AI tools being adopted by SMEs are helping streamline time-consuming tasks and improve operational efficiency.
Inadequate government support
Small businesses are increasingly struggling to survive due to rising wages, reduced customer spending, and ongoing inflation.
Without additional government support, many will face worsening conditions. In 2023–24, the number of businesses entering external administration rose by 39 per cent compared to the previous year.
A survey by Small Business Loans Australia found that 94 per cent of SMEs need more government assistance to stay afloat and 41 per cent require financial help to manage wage increases.
Increased competition
By 2025, SMEs will face heightened competition as more Australians start side businesses. A survey revealed that 50 per cent of Australians are considering launching an SME in the next five years, with 38 per cent planning to start side hustles alongside their main jobs.
The primary motivator is to increase income, as inflation and interest rates strain household budgets. This trend, coupled with declining consumer spending, will add pressure on SMEs.
Late payments impacting cash flow
SMEs will continue to struggle with limited cash reserves. A survey found that in 2024, nearly half of SMEs had to reduce their income and 31 per cent had to dip into personal funds to cover business expenses.
Alarmingly, 20 per cent of SMEs have no cash reserves. Late payments are also a significant challenge, affecting 75 per cent of businesses. Many SMEs prioritise customer satisfaction over cash flow, making them hesitant to pursue overdue payments.
SMEs are increasingly vulnerable to cyber attacks
Data from Accenture’s Cost of Cybercrime Study revealed that 43 per cent of cyber attacks target SMEs.
The number of cyber attacks has steadily risen, with 16,000 more reported in 2022 compared to 2019. Limited resources are a contributing factor, with 48 per cent of SMEs spending less than $500 annually on cyber security.
Paying too much in financial services fees
SMEs often lack the time or resources to compare financial products, leading them to overpay. Research showed that many SMEs overpay for international transactions through banks.
A recent study by Money Transfer Australia found that 62 per cent of SMEs use the big four banks for international trade, despite higher exchange rate markups and fees. For example, SMEs might pay up to $850 in fees when transferring $20,000 through a bank, while non-bank providers could charge as little as $100.
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