The future of small business survival: unveiling consumer sentiments insight

The struggles for small business survival is not over. In 2022, many small business owners hoped for a recovery after struggling during the COVID pandemic. However, inflation, a competitive job market, recession fears, global crises and unreliable supply chain issues have dampened their optimism.

Two years ago, the pandemic led to many households paying off their credit cards and mortgages, savings were high and spending was low.

Fast forward to today, inflation has led to rising mortgage rates and reduced cash savings. Household savings-to-income ratios are at their lowest since June 2008, with increasing credit card debt and soaring buy now pay later (BNPL) debts among Gen Z and Gen Y, who are likely to end up trapped in a debt spiral.

According to Finder’s Consumer Sentiment Tracker, in April 2023 the generations with the highest percentage of BNPL users within a 6-month period were Gen Z (55%) and Gen Y (52%), while Baby Boomers (15%) were significantly lower in comparison.

Consumer Outlook & Industry Insights

Variable rate borrowers faced multiple interest rate hikes, adjusting their spending to lower their mortgage payments, which has inadvertently resulted in increased credit card balances.

The next 12 to 18 months will be challenging for everyone, especially during Christmas as many consumers will have to tighten their belts due to the effect of increasing interest rates causing financial stress and the lack of a cash buffer. During financial strain, consumers often prioritise reducing discretionary spending, particularly in areas such as convenience, lifestyle and entertainment.

The latest ASIC Insolvency Statistics data released on 2 October 2023 reveals that since 1 July 2023, the construction (32.5%), accommodation & food services (13.8%), manufacturing, retail trade and transport industries were particularly vulnerable to insolvency. Geographically, the regions with the highest insolvency appointments were NSW (45%), followed by Victoria (24%) and Queensland (17%).

Look Out for Red Flags

Recognising red flags displayed by owners under financial stress is crucial. These include erratic behaviour, high stress levels, reluctance to communicate with suppliers and financiers and increased isolation. Owners often display overconfidence in their ability to resolve financial issues, even when it may not be well-founded, and a tendency to bury one's head in the sand.

At times owners may hesitate to seek professional advice due to concerns about reputation damage, high consultancy fees, fear of failure and losing business control. This often results in a tendency to delay addressing financial issues until it reaches a critical stage.

Whether you are as a consultant, advisor, accountant, lender, supplier, employee, or friend, try to recognise red flags and check-in to support business owners who may be in financial stress.

What to Do Now

Owners and advisors should regularly revisit the basics and assess the financial health of the business, review performance, pinpoint significant changes in revenue, overheads, taxes and other critical aspects in order to plan ahead and take proactive measures.

Too often action is only taken after owners receive a call from the bank, experience withdrawal of support from financiers, face enforcement actions by the ATO, or encounter supply disruption. Delaying action can limit the available restructuring options.

Advisors should engage in open discussions and not avoid the difficult conversations if they notice any signs of financial stress in their client or the business.

Wrap Up

Small businesses are facing a multitude of economic challenges, yet their inherent resilience prevails. To prepare and thrive in the face of uncertainty, owners should adopt a proactive approach by seeking advice early, focus on aspects within their control and deliver value to customers.

Recognise red flags, act proactively and seek expert advice.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.