Nearly half of Aussie small firms expect cash flow boost

Amid continued economic pressures, nearly half of Australia's small businesses forecast an improvement in cash flow by 2025, according to research conducted by Zoho.

The study involved over 500 small to medium businesses (SMBs) in Australia and found that high inflation and interest rates have led to increased operating costs for the majority of small businesses. Despite these challenges, there is growing optimism about future financial prospects.

The key findings indicate that 89% of small businesses have experienced increasing operating costs over the last 18 months. A significant 60.8% reported their costs rising by up to 20%, while 20.7% faced increases between 21% and 40%, and 7.6% saw costs soar by at least 41%. These rising costs have forced 78% of businesses to raise their prices, although this has impacted their cash flow negatively.

Despite these financial burdens, almost half of the businesses (46.6%) predict improved cash flow within the next 3 to 12 months.

A longer-term view shows that 29.3% see substantial growth opportunities in the ensuing 12 to 18 months, while 33.7% believe they are "recovering nicely" from the recent economic challenges.

"Small businesses are the backbone of Australia's economy, driving innovation, creating jobs, and fueling local communities," remarked Rakesh Prabhakar, Head of Zoho Australia and New Zealand. "However, many are facing a perfect storm of rising operational costs, interest rates, and ongoing supply chain disruptions, creating an environment that remains incredibly challenging. As a result, many small businesses have no choice but to pass the increased costs onto their customers."

He continued, "Despite these challenges, green shoots of optimism are beginning to appear. Inflation recently hit a three-year low, while there is growing optimism that 2025 could see a series of rate cuts that - along with tax breaks in July - will boost consumer spending."

"We're seeing this play out in our research, with almost half of small businesses forecasting an increased cash flow. Considering how much small businesses contribute to Australia both economically and socially, this positive indicator is very welcome."

More than half of the small businesses (51.4%) pointed to rising material costs as their main expense, followed by wages (41.4%), rent (32.7%), and increasing utility costs (30.5%). Despite this, nearly twice as many businesses expect their cash flow to improve compared to those anticipating a decrease, with only 26.9% predicting a fall in the next period.

Director at Light & Glo, Jeeva Sanjeevan, shared insights on the company's experience: "As has been the case for so many businesses, 2024 has presented its fair share of challenges. However, despite contending with rising costs and shifting customer habits, we've tackled the challenges head-on and emerged stronger. Partnering with corporate clients and supporting local community projects, like soccer clubs, has been key to our resilience and has helped deepen our local roots. As an Australian-made brand, we're proud of our heritage and our commitment to the community, and our community is responding. It's for this reason that we're feeling optimistic. While we know challenges will continue, we're confident about the future, thanks to our solid strategy and the technology that underpins our operations in Zoho. With the peak holiday season upon us, we're ready to build momentum and set the stage for a successful 2025."

The research highlighted the technological priorities for small businesses in 2025, with automation and digitisation being crucial. Accounting and bookkeeping software emerged as the top priority for 67.1% of businesses, followed by marketing automation software at 64.1%, a Point of Sale (POS) system at 56.2%, and CRM systems at 45.4%.

Prabhakar commented on the technological trends: "It's perhaps unsurprising given the economic situation, to see the nature of technology that small businesses are prioritising."

"Small businesses are investing in solutions that are focused on managing their financial bottom line and generating revenue and profitability. Amongst the Zoho technology stack, which contains over 55 apps across every business department, we're seeing particularly strong growth in tools focused on growth."

"In fact, in Australia, the average customer uses 18.22 Zoho apps to optimise their operations, seize opportunities and overcome challenges. Through the combination of technology and cautious macroeconomic optimism, millions of small businesses have the foundation to navigate today's pressures and position themselves for sustainable growth."