Key SME Challenges in 2024

2024 is likely to be a more difficult year for SME's than 2023, with a number of challenges evolving from last year. Being aware of the risks, and thinking about them now, is the best way to deal with uncertainty in business. Here's a list of some of the key challenges that I think SME Businesses should be thinking about as we head into 2024.

😰 Don't count on consumer spending growth

Consumer spending has showed strong growth since the end of the pandemic period, which has helped prop up many business that would otherwise have struggled. While consumer spending remained very strong through 2023, it started to flatline at the end of the year and I expect it will be flat across 2024, with the potential of a bit of a bump as the stage three tax cuts come in. That means business shouldn't plan for growth as a way to deal with rising costs.

😰 Prepare for a more active ATO

The ATO have made it very clear that they will be returning to a much stricter approach to compliance in 2024. Business that are still nursing a COVID-era tax debt, should be looking to deal with it early in 2024. While businesses that have traditionally relied on the ATO as an accessible form of finance should plan to be lodging and paying on time in 2024 to avoid costly consequences.

😰 Labour markets will be remain difficult

Despite record immigration, there are a wide range of industries where it remains very difficult to find appropriately qualified staff. Additionally, wage growth continues to pick up and a suite of reforms by the government introduced in 2023 will likely to further wage pressure. This means in a lot of industries, businesses are going to have to budget for above 5% wage increases to hang on to key staff and it will cost a premium to attract new talent.

😰 Cyber security will increasingly be an issue

Cybercrime continues to be profitable and with new technology constantly being developed to make it easier and more efficient, small businesses can no longer rely on security through obscurity. The risk increased last year with legislative changes that place disclosure responsibilities on businesses that suffer a breach, and potential fines for leaking private information. To make matters worse, cyber insurance is rapidly escalating in cost and complexity.  The best and cheapest option is to invest in a proper cyber mitigation strategy.

😰 It will get harder to get paid

As the economy slows and trading becomes more difficult, we are seeing the time it takes for SME businesses to get paid start to extend. This can lead to significant cash flow problems when invoices aren't paid when expected. Businesses need to have robust cash flow forecasts in place they are regularly monitored and updated. A focus on accounts receivable and quickly moving to collection action when invoices becomes overdue is also important. Finally, businesses need to have crisis funding plans in place in the event a key customer fails and they lose outstanding invoices.

😰 Increased volatility

Since the onset of the COVID-19 pandemic, we've seen increased volatility in global markets driven by a sequence of unexpected events and increased global conflict. While this trend may reverse (which I think is unlikely) it's important to have contingency plans in place for potential adverse events, like an interruption to a key supply, or significant adverse cost movements in inputs. It's a lot easier to cope with a sudden change in circumstances, if you already have a plan in place you can use as a starting point.

Predictions for 2024

Happy New Year!

Part of the fun of a new year is trying to predict how things will go, even through predicting things 12 months out is fraught with danger. So here’s a few small predictions for 2024:

🔮 We won't see a rate cut in 2024
Through the end of 2023, markets strongly pivoted to anticipating interest rates will begin to fall next year. I don't see that happening (either here or in the USA). Recent progress on headline inflation has been driven by a strong services inflation being offset by significant goods disinflation. The goods disinflation cycle is coming to an end and given the strength and general optimism in our economy, I don't see services inflation easing enough to see inflation appreciably fall through 2024. Rates will end the year where they started it, with further increases more likely than cuts through 2024.

🔮 Insolvencies will rise (but not that much)
Corporate insolvencies were up across the second half of 2023, slightly eclipsing the long term average in raw terms. However, they remain near all time lows on a per-company basis. With the ATO increasingly serious about collecting its debt book, and a large number of 'zombie' companies still trading with COVID debt hangovers, 2024 will see corporate insolvencies grow, but probably not to record levels. The strong economy and solid trading conditions are likely to persist through 2024, keeping plenty of businesses teetering rather than falling over. 

🔮 Unemployement will rise
Unemployment will continue to creep up in 2024, ending the year in the 4.5% to 5.0%. However, this will be driven not by people losing their jobs, but by the pool of workers growing through continued strong immigration. I expect the economy to remain strong and continue to generate jobs, just not enough to keep up with the influx of new people.

🔮 Wage growth will be a problem 
A combination of continued skill shortages in a range of key industries, and some misguided IR reforms by the current government will lead to continued upward pressure on wages, which will continue to drive services inflation. We’ve already seen some outsized pay deals, and each success will only encourage other to chase bigger raises.

🔮 We won't have a recession
There's near zero chance of a recession in 2024, absent some kind of unforeseen disaster or a wild pivot by the RBA. The economy is still far too strong and there's too much latent demand stashed away by households for the economy to really roll over.

Another SBR Approved

A great way to start the week, with another Small Business Restructuring Plan approved by creditors.

This one was a tricky one:
😬 ATO wind up proceedings were on foot at the time of appointment.
😬 The company's records were not up to date.
😬 There were three years of tax returns and 18 months of BAS outstanding.
😬 SGC statements had not been lodged or paid for 12 months.

We worked through all these issues in the (extended) 30 business day restructuring period, with the help of an external bookkeeper and accountant, and were able to have the Company fully up-to-date and compliant by the time we issued the Restructuring Plan.

The Plan was accepted today, providing a solid 54 cents in the dollar return to creditors over the next two years.

It's great to save another small business and wonderful to see creditors support a struggling small business that did the right thing and took positive action to turn their situation around.