Small Business Pulse reveals challenging conditions

The ASBFEO February Small Business Pulse makes it clear that while an interest rate cut may have provided some modest relief to financing costs and a slight nudge to consumer demand, a challenging small business operating environment remains.

Over the past quarter, the ASBFEO Pulse found small business ‘health-check’ has deteriorated a further 0.3 per cent to record a 1.5 per cent decline over the last 12 months, levelling off since sharply declining by some 25 per cent after the end of COVID-era support and substantially below the long-term average.

If you believe as I do, that small and family businesses are the engine room of the economy, we have lost a cylinder in a 4-cylinder engine in the aftermath of COVID.

The Pulse calls things as they are, and only by recognising the challenges can we hope to address them.

The ASBFEO Pulse is a ‘real time’ health check that combines actual objective business conditions data, measures of the vital signs and ‘animal spirits’ that drive small business owners, while also accounting for actual business decisions, actions and choices being taken or under active consideration.

Our analysis reflects the findings of the RBA in the statement released by the Reserve Bank Board following their meeting a few weeks ago. They note that the outlook remains uncertain and growth in output has been weak with a slower than expected private domestic demand recovery.

This is why the Pulse matters, is widely cited and heralded by the small business community and analysts as true to their experience. It is a world-leading combination of non-traditional and traditional data that is an indicator of small business health. There is growing research on the value of harvesting alternative data such as internet searches to complement traditional sources of information such as official statistics, which gives a more nuanced understanding of the small business environment.

Alternative data sources can provide the early indicators of changes in the environment and ambition when combined with traditional data and interpreted with subject matter expertise. This is particularly important when conditions are changing rapidly, which traditional sources of information and point-in-time surveys often miss. These sources can also help us ‘see’ those businesses that may not be captured through traditional datasets.

High business input costs, lengthy payment times and difficulty finding suitable staff continue to weigh down small business owners and put pressure on margins and profitability.

Two in five cases that come to my office involve a payment dispute, and it continues to be the biggest issue, with more businesses seeking assistance concerned that their business customers may have become insolvent. Wary and uneasy businesses are researching safeguards such as trade credit insurance and the Personal Property Securities Register to protect their interests.

I am hopeful that the reduction in interest rates will provide some modest welcome respite and may encourage investment appetite.

Small business owners are looking forward to better times and are already researching financing for capital investment including business vehicles and equipment.

Small business owners are also busy comparing the costs of using personal loans to fund their business and using personal assets to secure finance.  It is sign of how owning a small business is so much more than a job, and how interwoven business and personal interest can be, but it also reflects the renewable resource that is the optimism of small business owners.

Research into alternative funding sources such as crowd funding and venture capital has also increased. This is noticeable in startups and for small businesses seeking to invest in sustainability initiatives.

The Pulse highlights growth in enquiries about starting a business have slowed overall but is patchy.  We have published how the rate of conversion for a non-employing business taking on their first employee is the lowest it has been since the ABS started collecting this data series in 2007.

Interest remains high in industries that facilitate home-based work such as daycare, freelancing and online gaming. The transport, postal and warehousing industry had the highest growth in business numbers over the last year. This is likely to continue, with enquiries about starting a delivery/fulfilment business in this industry remaining high.

The Pulse is one of the reasons ASBFEO was a recipient of the prestigious International Council for Small Business Lighthouse Award for 2024-2025.

Amongst global peers including the US Small Business Administration, ASBFEO was recognised for our dedication to developing and implementing impactful programs, influencing and advocating for better policies, and advancing research and innovative solutions that create a lasting positive impact on our small and family business community and beyond.

The ICSB Lighthouse Award identifies ASBFEO as a guiding beacon and source of stability, hope and support for micro, small and family businesses and enterprising women and men during challenging times. This international recognition reflects ASBFEO’s focus on celebrating those driven and courageous women and men who may not be ‘seen’ in traditional datasets. They may be early-stage or unseen ‘side-hustle’ business builders, people from CALD backgrounds or indigenous communities who aspire to bring their small business dream to life.

Encouragingly, 35 per cent of small businesses are owned by women which is double the rate in the 1970s.  And we are seeing more new businesses being created by women who are finding solutions to everyday problems, sharing their ideas and building a business from their ingenuity and willingness to ‘have a go’.

Small business owners are often driving forces in their local communities and are more likely than the general population to be volunteers, showing their commitment to their communities.

With one in three small businesses run by people who were born overseas, our culture, local business communities, and our communities broadly, are positively enriched by their presence.

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