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).

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
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
By business size
How much cash flow do you need every month to meet all your expenses?
Small Business Loans Australia
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?
By business size

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.

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?
Chart interest rates and inflation
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
How much had you planned to invest in the next year (whether you’ve cancelled those investments or will continue)?
Chart How much to plan to invest in the next year