With multiple interest rate hikes in recent months, just over a quarter (27 per cent) of Australian SMEs remain optimistic about Australia’s chances of escaping a looming recession[1]. Many are taking concerted efforts to track and reduce their expenses in the event consumer demand drops off with further rate hikes.[2] It’s in those efforts to reduce unnecessary spending that a staggering 86 per cent of Australian SMEs have discovered that they are overspending on at least one expense category[3], which are adversely impacting their bottom line. In light of an uncertain economic outlook for Australia, Alon Rajic, Founder of Small Business Loans (smallbusinessloansaustralia.com ), encourages SMEs to be disciplined with their business expenses this year: “With SMEs making up 97 per cent of the Australian business market, the fact that research is showing so many are failing to shop around for better deals on their business expenses is a cause for concern. This is a time when businesses should be forensically monitoring their outgoings and reviewing overpriced suppliers.” Alon sheds light on some of the areas that business owners and senior decision-makers are overlooking when attempting to curb business spend:1. Not looking beyond the big four banks for loans. Research also reveals that two-thirds (64 per cent) Australian SMEs are unwilling to look elsewhere if they cannot obtain a favourable loan rate from one of the big banks, potentially inhibiting their business growth. A whopping 70 per cent of micro businesses and 46 per cent of small businesses ignore better rates offered at alternative lenders. More than half (59 per cent) of large businesses would continue to obtain bank loans with an interest rate of up to 10 per cent. As interest rates continue to increase at a rapid rate, SMEs should be using a comparison service to shop around for the best rate rather than abstain from borrowing altogether. (The full study can be found here: https://smallbusinessloansaustralia.com/sme-big-bank/). 2. Unnecessary overspending in their business. A study found that a third (32 per cent) of businesses could save at least $100,000 a year if they reviewed their spending and reduced unnecessary expenses. Even more alarmingly, one fifth (21 per cent) could save over $200,000 a year if they simply avoided unnecessary spending. Businesses are overspending in a wide range of areas, including payroll, IT, marketing, insurance, travel, loans, vehicles, utilities, equipment, rent, and more. More than a quarter (28 per cent) admitted they were paying too much for insurance, as well as utilities (26 per cent). One in five (20 per cent) believe they’re paying too much for rent or commercial property loans. Measures such as downsizing workplaces if offering a hybrid working arrangement, switching insurers and utility providers, and refinancing business loans for a better deal could help make significant changes to SMEs’ yearly spending. (The full study can be found here: https://smallbusinessloansaustralia.com/areas-of-overspending/)3. Not having a plan in place to resolve late customer payments. Late customer payments can have a crippling effect on small businesses. This could hamstring a business’s ability to pay supplier invoices, staff salaries and loans. Research has found that 64 per cent of Australian SMEs were impacted negatively by late payments in 2022. Almost a quarter (22 per cent) struggle to pay themselves as a result, and 15 per cent struggle to pay employees. (See full results of the study here: https://smallbusinessloansaustralia.com/late-customer-payments/ ). The situation is only expected to worsen in the next financial year, due to rising costs of business expenses such as goods, utilities, rent and fuel. Australian SMEs owners can avoid – or at least better manage – overdue payments through debt-collecting apps, early payment incentive systems, or by offering alternative methods of payment. 4. Focussing on new customers, rather than retaining existing customers. Figures released in May show that retail volumes had fallen for a second straight quarter.[1] Acquiring a new customer can cost five times more than retaining an existing one.[2] This is a particularly sobering comparison at a time when Australians are beginning to cut spending. As nurturing relationships is a key to a business success, SMEs will need to focus more on retaining existing customers to reduce the cost burden of new customer acquisition. Ignoring customer feedback, poor customer service or simply failing to reward customers for their loyalty can motivate customers to end their relationship with businesses. 5. Failing to retain employees. With Australia’s unemployment rate of 3.5 per cent and little or no immigration in the last three years, Australia has been serving up more jobs than there are job seekers to fill them. Businesses need to focus on employee retention because of the lack of talent and because the advertising, recruitment and training costs involved in replacing employees is significant. It can cost 1.5 times an employee’s annual salary to replace them.[3] Retaining employees means engaging, rewarding and motivating them, providing development opportunities, and offering competitive salaries and benefits packages. 6. Poor technology and digitisation. Research has found that 59 per cent of SMEs are running processes manually, that could be digitised. [4] Businesses that don’t utilise labour-saving technology and digitisation are, instead, paying much higher costs by having people deliver their services and operations. Technology and digital platforms can streamline workflow, improve efficiency,[5] deliver valuable data insights to help businesses make better-informed decisions on the most profitable aspects of their business, enhance their customer experience, and stay ahead of their competition. 7. Failing to check rates and fees on overseas payments. With wire fees of up to $40 on international money transfers through the banks, it’s surprising that research shows over a third of businesses (36 per cent) don’t even bother checking the exchange rate and other associated fees prior to making overseas payments. Small and micro businesses are the worst offenders, with 44 per cent of small-business owners and 35 per cent of micro-business owners admitting that they never compare providers. (The full study can be found here: https://moneytransfercomparison.com/australian-business-exchange-rates/). By doing their due diligence, SMEs can save hundreds on higher-than-anticipated exchange rate fees. It’s not only businesses that are guilty of failing to shop around. The habit is also widespread among consumers, with 44 per cent of Australians admitting that they frequently forget to check for the best available deal when making money transfers or purchasing foreign currency. (The full study can be found here: https://moneytransfercomparison.com/research-prior-to-transfer/).
[1] ABS. May, 2023. https://www.abs.gov.au/media-centre/media-releases/retail-volumes-fall-second-straight-quarter
[2] Outbound Engine. 2022. https://www.outboundengine.com/blog/customer-retention-marketing-vs-customer-acquisition-marketing/#:~:text=Acquiring%20a%20new%20customer%20can,customer%20is%205%2D20%25.
[3] Bentlys. 2022. https://www.bentleys.com.au/knowledge-centre/cost-of-high-employee-turnover/#:~:text=The%20true%20cost%20of%20replacing,1.5%20times%20their%20annual%20salary.
[4] MYOB, June 2022: https://www.myob.com/au/about/news/2022/digitised-but-disconnected–3-in-5-smes-report-digital-solutions
[5] Accenture. https://www.accenture.com/us-en/insights/digital-transformation-index#:~:text=Digital%20transformation%20puts%20technology%20at,easier%20to%20achieve%20future%20ambitions.