July 2023
WHAT ARE THE
FIRST CUTS
BUSINESSES WILL
MAKE IN A
RECESSION?
A Small Business Loans Australia Study
What are the first cuts businesses will make in a recession
WHAT ARE THE
About the study
Small Business Loans Australia commissioned a survey of 202 directors and decision-makers of SMEs to identify the common business expenses business owners would cut as the economic outlook worsens.
Respondents were asked to specify where they would tighten their purse strings in the event of a recession.
Small Business Loans Australia surveyed 202 owners and senior decisionmakers across the full SME spectrum: micro (1-10 employees), small (11-50 employees) and medium-sized (51-200 employees), as well as a small percentage of large businesses (more than 200 employees).
Micro
(1-10 employees)
(1-10 employees)
Small
(11-50 employees)
(11-50 employees)
Medium
(51-200 employees)
(51-200 employees)
IN THE EVENT OF A RECESSION, WHAT ARE THE FIRST CUTS BUSINESSES WOULD MAKE?
The highest proportion of businesses (17%) would cut contractors, freelancers and other outsourced professional services first in the event of a recession. A similar number of businesses (16%) would cut internal staff in order to reduce costs. That was followed by:
- Reducing new equipment purchases (12%)
- Downsizing offices or workspaces (10%)
- Reducing marketing spend (10%)
- Cutting or reducing business travel (10%)
- Reducing employee spend (7%)
- Other (6%)
- Pay cuts for senior leaders including business owners themselves (5%)
- Decrease production (4%)
- Reduce subscriptions (3%)
In the event of a recession, what would be the first cuts you would make in your business?
BY BUSINESS SIZE.
Larger SMEs would be the most likely to cut staff numbers in the event of a recession: 23 per cent of medium-sized businesses, followed by 16 per cent of small businesses, and 16 per cent of micro businesses.
Contractors, freelancers, and outsourced professionals would be the first costs cut for 21 per cent of medium-sized businesses, 18 per cent of small businesses and 15 per cent of micro businesses.
Medium-sized business would also look at reducing employee spending such as lunches, parties, benefits, and bonuses (13%). This compares with 6 per cent of small businesses and only 4 per cent of micro businesses.
New equipment purchases would be the first to go for smaller businesses (18%), followed by micro businesses (14%) and medium-sized businesses (4%).
In the event of a recession, what would be the first cuts you would make in your business? (By business size.)
BY STATE.
Businesses in West Australia are most likely to cut contractors, freelancers, and other outsourced professional services (24%), followed by Victoria (23%), Queensland (20%), New South Wales (14%) and South Australia (7%).
In South Australia, 33 per cent of business owners are likely to cut internal staff ahead of outsourced professionals (7%) in the event of a recession. Twenty (20) per cent of business owners in Queensland will also make cuts to staff in order to save money, followed by New South Wales respondents (16%), Victorians (15%) and West Australians (10%).
In the event of a recession, what would be the first cuts you would make in your business? (By State.)
| Response | |||||
|---|---|---|---|---|---|
| By State (%) | |||||
| NSW | VIC | QLD | SA | WA | |
| Cut outsourced professionals | 14 | 23 | 20 | 7 | 24 |
| Cut internal staff | 16 | 15 | 20 | 33 | 10 |
| Reduce employee spend (lunches, parties, benefits, bonuses etc.) | 6 | 4 | 3 | 20 | 14 |
| Downsize offices or workspaces | 8 | 17 | 5 | 0 | 14 |
| Decrease production | 3 | 2 | 0 | 7 | 10 |
| Pay cuts for senior leaders (including myself) | 8 | 2 | 8 | 0 | 5 |
| Reduce marketing spend | 8 | 13 | 5 | 13 | 5 |
| New equipment purchases | 16 | 13 | 10 | 7 | 0 |
| Subscriptions | 5 | 0 | 5 | 0 | 5 |
| Business Travel | 13 | 8 | 10 | 13 | 10 |
| Other | 3 | 4 | 15 | 0 | 5 |
