With last financial year’s tumultuous events behind us, we look at six trends set to shape small businesses in Australia and New Zealand, and how to prepare for them.
With the 2022 financial year well underway, small businesses across Australia and New Zealand are probably breathing a sigh of relief. Last financial year was characterised by fear, uncertainty and flying blind through a global pandemic, and while the threat of COVID-19 remains, businesses and consumers at least know how to adapt when an outbreak or a lockdown occurs.
Now it’s time to think about and prepare for the challenges and opportunities that lie ahead. Here’s a look at six big issues facing small businesses in FY22.
1. Border closures will continue to impact growth
While nothing’s written in stone, Australia and New Zealand’s international borders look set to remain closed to most of the world for months to come. With almost half of Australia’s tourism industry and 91% of New Zealand’s tourism industry made up of small businesses employing less than 20 people, the loss of international tourists will be keenly felt in FY22.
But it’s not just tourism businesses that will be affected by the border closure. Many sectors, such as construction and retail, depend on population growth to boost sales. And without immigrants arriving from other parts of the world, population growth in the region will flatline.
Small businesses will need to adjust their growth projections with this in mind, and ensure their costs don’t start to increase faster than their sales, or they could face a cash flow problem.
2. Merger and acquisition activity will increase
Buyer interest in small businesses is expected to rise this year due to low interest rates and more people deciding to take the plunge into business ownership following unemployment in the corporate sector during COVID-19.
In New Zealand, the average business price is expected to grow between 10-12%, with the most in demand business categories expected to be food manufacturing and distribution, IT services, healthcare, building and construction and subscription businesses with positive cash flow. In Australia, mid-market deals valued between $10 million and $250 million are predicted to be the most attractive buyers.
This increased merger and acquisition activity could present opportunities for well positioned businesses to expand their operations or refinance debt at attractive rates, though it could also lead to consolidation in certain sectors, leading to stiffer competition. Small businesses will need to focus even more sharply on their unique selling points to ensure they stay relevant.
3. Tightening labour market will make hiring harder
Thanks to government wage subsidy programs, unemployment was mostly kept under control in Australia and New Zealand during COVID-19. And while it’s still slightly up on pre-pandemic levels, some sectors are starting to face a tightening labour market, as certain types of workers – backpackers and international students – are no longer available, and others have changed career paths in pursuit of better prospects.
To compete for top talent, small businesses will either need to raise wages or invest in training and upskilling staff to give them a reason to stay. In New Zealand, wage growth is already expected to rise by nearly 3% a year, outpacing inflation, so small businesses will need to factor this into their cash flow forecasts.
In Australia, small businesses should consider tapping into the government’s JobTrainer program, which pays for 50% of new or recommencing trainees’ and apprentices’ wages and was recently extended through September 2022.
4. Rising cost of materials will create a knock-on effect
The cost of various raw materials has skyrocketed over the past year due to supply chain disruptions and changing demand. Global prices for everything from building supplies, such as lumber and steel, to the key components needed to make electronic devices, such as microchips and metals like copper and zinc, are still way above pre-pandemic levels.
This will likely have the biggest impact on businesses in the construction and manufacturing industries, but there will be a knock-on effect across many different businesses and sectors and even consumers, as each link in the supply chain passes on the increased costs to the next one.
5. Digital investment will remain a top priority
With the shift to online shopping and rise of remote working, it’s no surprise that digital will remain a key area of focus for small businesses in the coming year. But while many small businesses invested heavily in digital during the first round of lockdowns, some are still struggling to catch up.
To help bring them up to speed, the Australian Government has set aside $28 million for small business digitisation in the FY22 Budget as part of its $1.2 billion Digital Economy Strategy. This also includes $124.1 million to develop the country’s artificial intelligence capabilities. In New Zealand, small businesses can benefit from a new two-year programme that received $44 million in funding in the latest Budget and will deliver core digital business skills training.
6. Push to shop local will aid cash flow
When COVID hit, many consumers stepped up to support local businesses, and while the lockdowns have ended, their support hasn’t. A recent survey found that 77% of Kiwi consumers made most of their purchases at local stores and 24% visited local shops more than they did before the pandemic. In Australia, 63% of consumers said they shopped local during the pandemic, and of these, 97% said they’ll continue doing so post-pandemic.
By leaning into the shop local movement, small businesses can increase their sales and boost their cash flow.
Focus on cashflow to thrive this financial year
Compared to the challenges that small businesses faced last financial year, the return to more stable spending patterns and opportunities around e-commerce and ‘shop local’ trends in FY22 are a relief. But small businesses could still face some serious cash flow pressure in the months ahead.
A flexible buy now, pay later payment solution like hummpro is a smart way to manage cash flow without having to deal with a bank or be worried about compounding interest traps. You can simply buy the things you need to run your business when you need them, and repay them when the time is right. Find out more about how hummpro works here.