Will interest rates and inflation impact cash flow and investments for SMEs before FY24?

A Small Business Loans Australia Study

September 2022

Small Business Loans Australia commissioned an independent survey of 253 Australian SME owners and senior decision makers to gauge how rising interest rates and inflation would impact their cash flow and investment plans before FY24.

Respondents were asked to indicate how much cash flow they needed to meet their expenses every month and whether they had a plan in place to maintain cash flow. They also indicated whether rising rates and inflation had influenced them to delay any investment in their business. Such insights form an overarching perspective of business health and conditions in the Australian SME sector during FY23.

Small Business Loans Australia surveyed businesses across different organisational sizes: micro (1-10 employees), small (11-50 employees) and medium (51-200 employees).

How inflation impacts expenses and loans.

Small Business Loans Australia sought to determine how Australian SMEs would be impacted by the current climate of fast-growing interest rates and inflation, and how this may affect their cash flow in FY23. Respondents were asked to identify the impact to their cash flow.

76%

of SMEs revealed their cash flow will be impacted by the current climate

When asked how, more than a quarter (30 per cent) said it will be more challenging to collect customer payments, while 26 per cent said sales will be more difficult to attract, and a fifth (20 per cent) revealed both factors will have an impact on their cash flow.

Just 24 per cent revealed their cash flow will not be impacted.

Will the current climate of fast-growing interest rates and inflation impact your cash flow in 2022 and 2023?

Chart climate of fast-growing interest rates

What proportion of Australian SMEs will see impacts to their cash flow due to the current economic climate? By State.

Across the States, a higher proportion of NSW SMEs revealed potential cash flow problems, at 82 per cent followed by 81 per cent of Western Australian SMEs, 77 per cent of Victorian, 73 per cent South Australian SMEs and 67 per cent of those in Queensland who said the same.

Queensland businesses appeared to be the most prepared for the changing economic climate, with a third (33 per cent) stating their cashflow would not be impacted by growing interest rates and inflation. This was followed by 27 per cent of South Australian SMEs, 23 per cent in Victoria, and compared with 19 per cent and 18 per cent in Western Australia and NSW, respectively.

Will the current climate of fast-growing interest rates and inflation impact your cash flow in 2022 and 2023?

Response
	State (%)
	NSW	VIC	QLD	SA	WA
Yes, it will be harder to collect customer payments, which will reduce my cash flow	33	28	26	27	44
Yes, it will be harder to attract sales, which will reduce my cash flow	23	26	26	30	31
Yes to both answers (a) and (b)	26	23	15	16	6
No	18	23	33	27	19

Will the current climate of fast-growing interest rates and inflation impact your cash flow in 2022 and 2023? By business size.

Small Business Loans Australia analysed responses across micro (1-10 employees), small (11-50 employees), and medium-sized businesses (51-200 employees). It found micro businesses are less likely to have their cash flow impacted by tough economic conditions: with just 29 per cent forecasting no problematic cash flow issues this financial year. This compares with 15 per cent of small businesses and 14 per cent of medium-sized businesses who predict they will not have cash flow issues.

While smaller businesses generally tend to turn over lower profits and have less of a financial cushion than big corporations, fewer employees and less overhead costs may enable them to maintain cash flow more successfully than their larger counterparts.

How much cash flow do you need every month to meet all your expenses?

How much cash flow do you need every month to meet all your expenses?

Response
	State (%)
	NSW	VIC	QLD	SA	WA
Less than $30,000 a month	53	62	69	70	44
Around $50,000 a month	20	16	6	17	18
Around $100,000 a month	8	8	7	3	19
Around $200,000 a month	7	7	9	0	13
Around $300,000 a month	5	4	5	7	0
Around $500,000 a month	5	3	2	0	0
Around $1m a month	2	0	0	0	0
More than $1m a month	0	0	2	3	6

How much cash flow do you need every month to meet all your expenses?

Small Business Loans Australia also sought to uncover whether SMEs have a strategy or plan in place to maintain cash flow during tough times. Fourty-three (43) per cent of respondents indicated that they do not.

Do you have a strategy or plan for maintaining cash flow in tough times?

Chart maintain cash flow during challenging periods

By State.

63%

of WA businesses don't have a plan in place

SMEs in Western Australia are least likely to have a plan in place: 62 per cent of WA businesses don’t have a plan, compared with 57 per cent of SA SMEs, 42 per cent of Victorian SMEs, 41 per cent in NSW and 35 per cent in Queensland indicated the same.

Do you have a strategy or plan for maintaining cash flow in tough times?

Response
	State (%)
	NSW	VIC	QLD	SA	WA
Yes	59	58	65	43	38
No	41	42	35	57	62

Do you have a strategy or plan for maintaining cash flow in tough times?

Chart maintaining cash flow in tough times

What proportion of SMEs will delay or cancel planned business investments due to the current climate?

Another key research point by Small Business Loans Australia was the proportion of SMEs who will need to make cuts to, or delay, planned investments in their businesses – such as new hires or technology, due to rising interest rates and inflation.

More than half (55 per cent) indicated that they will delay or cancel investments. Specifically, 40 per cent revealed they will delay investments until the economic climate improves, while 15 per cent will cancel investments altogether. Just 16 per cent revealed they will continue with their planned investments, while 29 per cent admitted they had no plans to invest in their business in the first place.

With the rising interest rates and inflation, will you delay or cancel any planned investment in your business?

Across the States, a larger proportion of NSW SMEs will delay planned investments into their business, at 47 per cent. This is followed by 43 per cent of South Australian SMEs and compared with 39 per cent of those in Victoria, 33 per cent in Queensland and 31 per cent in Western Australia.

More SMEs in NSW than those in any other State revealed they plan to cancel or delay investments, at 61 per cent. This compares with 56 per cent of SA SMEs who said the same, 55 per cent of Victorian SMEs, 50 per cent of those in Queensland SMEs, and just 37 per cent in Western Australia.

How much cash flow do you need every month to meet all your expenses?

Response
	State (%)
	NSW	VIC	QLD	SA	WA
Yes, I will delay investment until the economic climate improves	47	39	33	43	31
Yes, I have - or will - cancel investment altogether	14	16	17	13	6
No, I am continuing with investment	13	16	20	10	32
N/A – I had not planned to invest in my business	26	29	30	34	31

54%

of medium-sized businesses indicated they would delay planned investment

52%

of small businesses indicated they would delay planned investment

34%

of micro businesses indicated they would delay planned investment

A larger proportion of micro businesses indicated they had not planned investment for their business, such as new hires, technology or equipment, at 39 per cent. This compared with just 9 per cent of small businesses and 6 per cent of medium-sized businesses.

With rising interest rates and inflation, will you delay or cancel any planned investment in your business?

Did SMEs have significant business investments planned for the next year?

Respondents were asked to specify how much they planned to invest in their business before FY24 regardless of whether they will cancel or continue with those investments.

More than half (55 per cent) indicated they planned to invest more than $50,000 in their business before next July, while one in five (19 per cent) planned to invest $100,000 or more.

West Australian SMEs are more likely to invest a significant sum in their business, with 36 per cent indicating they planned to invest more than $100,000 in the next year. This compared with just 13 per cent of Victorian SMEs, 10 per cent in South Australia, 6 per cent in NSW, and 5 per cent in Queensland.

How much had you planned to invest in the next year (whether you’ve cancelled those investments or will continue)?

Chart How much to invest in the next year

Response
	State (%)
	NSW	VIC	QLD	SA	WA
Up to $10,000	18	27	28	35	18
Around $10,000	23	16	18	20	18
Around $50,000	37	27	26	20	28
Around $70,000	2	15	8	10	0
Around $100,000	14	2	13	5	0
More than $100,000	6	13	5	10	36

Smaller SMEs planned to invest less in their business in the next year: 37 per cent of micro businesses indicated they planned to invest just up to $10,000, compared with 12 per cent of small businesses and just 6 per cent of medium- sized businesses.

As such, a higher proportion of larger businesses intended to invest larger sums in the next year. Four in five (81 per cent) medium-sized businesses revealed they planned to invest at least $50,000, compared with 72 per cent of small businesses and 42 per cent of micro businesses.