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.