Small and medium businesses growth halves amid wages boom: Employment Hero

More smaller businesses are likely to shut up shop in the coming months as wage hikes and a broader economic slowdown leave many struggling to survive.

Small business owner Megan Stevenson at her cafe Stevies Little Shop at Carlton in Sydney. She says the cost of living crunch has changed consumer habits. Picture: Richard Dobson

Small and medium enterprises are fighting for survival as wage increases running at double the rate of inflation, combined with cost of living pressures and an economic slowdown, put more businesses under pressure.

Analysis from Employment Hero, whose software is used by 150,000 SMEs to pay 1.5 million Australians, shows wage growth on the platform has accelerated 7.8 per cent in the year to April — more than double the monthly CPI figure of 3.6 per cent published by the Australian Bureau of Statistics on Wednesday.

It comes as SME growth halved, with employee growth down to 6 per cent in the year to April compared to 11 per cent in the previous period.

Employment Hero chief executive Ben Thompson said the rapid increase in wages was a threat for many small and medium-size businesses.

“If the growth rate continues to decline while wages and operational costs rise, we could see a significant number of SMEs struggle to survive,” he said.

“This would have profound implications not only for the businesses themselves but for the broader economy, as SMEs are vital for job creation and innovation.”

Insolvency rates among small and medium businesses have risen to a record high in recent months, with Australia set for the highest rate of insolvencies since the Global Financial Crisis, with 8742 insolvency appointments up to April 30 this financial year, compared with 6200 during the same period a year ago.

Construction, food and accommodation services, and retail firms made up the lion share of corporate collapses.

An estimated 5000 restaurants are predicted to go under in the next 12 months, according to recent research from Equifax.

The weakest hiring growth among small and medium businesses was in Victoria, up 5.6 per cent in the past year, according to Employment Hero, underscoring ongoing business difficulties in the state.

In contrast, South Australia and Western Australia lead with growth rates of 8.4 per cent and 8.2 per cent in the past year, respectively.

Megan Stevenson, the owner of Stevies Little Shop in Carlton, south Sydney, told The Australian that the current economic climate was forcing many businesses to go under, describing the situation as more challenging than during the pandemic.

“The current climate is actually much harder for small business than during Covid,” she said.

Employment Hero CEO Ben Thompson says many SMEs will go out of business in the months ahead.

Ms Stevenson said that cost-of-living pressures had forced many of her customers to change their spending habits.

“It has been a very slow start to the year with more people back in the office or opting against that second cup of coffee,” she said.

“We stock a lot of gourmet meats and products as well as customers who once might have purchased an eye fillet are now buying more sausages, so we’ve had to change our product lines.”

Ms Stevenson said that it was very evident within the industry that the current climate had forced many businesses to shut up shop.

“I know people who have been in the industry for decades and very successful, who have struggled and gone out of business. They are not even selling the business, just walking away altogether which is very sad,” she said.

Mr Thompson said there was no easy fix for many small and medium enterprises who would have to do their best to ride out the current economic conditions.

“There’s no easy solution here when inflation is running the way it is and wages are outpacing inflation by over 100 per cent,” he said.

“We’re still trying to stimulate the economy and deal with cost of living pressures, but it’s not necessarily the solution that SMEs need right now.”

Inflation climbed on Wednesday for a second month to 3.6 per cent in the year to April, from 3.5 per cent in the month before, as a result of strong growth in housing and fruit and vegetables. It followed retail turnover up 0.1 per cent in April.

Employment Hero’s latest SME index also revealed that retail, hospitality and tourism sectors showed modest growth in hiring rates at 5.4 per cent in the past year, while construction lifted 5.2 per cent.

Healthcare and Community Services outperformed significantly, up 9.1 per cent, which showed the resilience of the healthcare sector amid broader economic uncertainties.