7 challenges small businesses are forecasted to face in 2025

Australian small to medium-sized businesses (SMBs) are encountering significant challenges, with business failure rates climbing to 2020 levels. In October 2024, 5.04 per cent of companies failed, edging close to the 2020 peak of 5.08 per cent.  

 

Unfortunately, SMBs will continue to face considerable challenges going into the new year, with Alon Rajic, Founder of Small Business Loans Australia (smallbusinessloansaustralia.com), conducting research to uncover the key challenges for SMBs in 2025.  

 

Alon says: “Small to medium-sized businesses make up 98 per cent of all businesses in Australia, and they are increasingly doing it tough. As we head into 2025, they will likely continue suffering resource shortages, reduced customer spending and continued inflation, all of which strain limited resources. Other challenges like bank fees on international transfers and cyberattacks can be reduced through preparation, awareness and allocation of resources. It is important that SMBs prepare for these hurdles and know how to receive support from either private financial providers or the Government.” 

 

Alon’s research identified the following seven biggest challenges facing SMBs in 2025:  

 

1. Tighter employee laws. Recent industrial relations reforms are increasingly stretching small business resources and making it difficult for them to adapt resources to growth and changing markets. Reforms include a 5.2% increase in the national minimum wage; permitting ‘employee-like’ contractors to seek Commission intervention for unfair contract term disputes; not permitting pay secrecy clauses to address the gender pay gap; multi-employer bargaining; giving employees the enforceable right to seek flexible working conditions; and 10 days’ paid family and domestic violence leave annually. A study found that over half of Australian SMBs think that the Industrial Relations Reforms will make payroll procedures more complex, with many completely unprepared for the changes.1 Forty (40) per cent of SMEs find it difficult to keep up with legislation and compliance obligations.2
2. SMEs will continue to be resource poor – but AI will help to alleviate business pressures. 43 per cent of SMBs consider the cost of hiring talent too much, and a further 47 per cent find the hiring process too lengthy.3 25 per cent of SMBs indicated that lack of time and capacity was the main reason they were unable to adapt new technology into their business.4 Despite this, a study from Small Business Loans Australia found that 60 per cent of all Australian businesses are already using AI, or planning to integrate AI in the next two years. SMBs are adopting AI tools such as AI-powered reporting and chatbots with automated email replies to streamline time-consuming tasks and improve operational efficiency. Find the full report here: https://smallbusinessloansaustralia.com/are-small-to-medium-businesses-harnessing-the-power-of-ai/ 
3. Inadequate government support. Small businesses are finding it increasingly difficult to stay afloat in the current environment of rising wages, reduced customer spending and ongoing inflation. Without further government assistance, many will face increasingly difficult circumstances. In 2023-24, the number of companies forced into external administration grew by 39 per cent from 2022-23.3 In a survey of small-to-medium businesses by Small Business Loans Australia, 94 per cent of say they need more Government support to help them survive, and 41 per cent says they require financial support to pay wage increases. The full survey and results can be found here: https://smallbusinessloansaustralia.com/will-small-businesses-benefit-from-the-new-federal-government-incentives-in-fy2025/.
4. Increased competition. In 2025, small-to-medium businesses will start seeing more competition from an increasing number of Australians starting side hustles. Small Business Loans Australia survey found that 1 in 2 Australians are considering starting a small business in the next five years. A further 38 per cent would run a side hustle in addition to their main job. The survey found that the main motivator is to boost incomes as inflation and interest rates put pressure on household budgets. As consumer spending continues to drop, this will also place pressure on small-to-medium businesses. The full report can be viewed here: https://smallbusinessloansaustralia.com/factors-driving-small-business-start-ups-in-australia/.
5. Late payments impacting cash flow. Small-to-medium businesses will continue struggling with tight cash reserves. A survey found that in 2024, nearly half of businesses forced to reduce their own income and 31 per cent dipped into personal funds to cover business expenses. Alarmingly, one in five has zero cash reserves.4 This is exacerbated by late payments, which affect three-quarters of businesses.5 To add to the challenge, many small-to-medium businesses prioritise customer and client satisfaction over their own cash flow, leaving them hesitant to chase late payments. 
   
6. SMBs are increasingly vulnerable to cyberattacks. Data from Accenture’s Cost of Cybercrime Study found that 43 per cent of cyberattacks target small businesses. The number of reported cyberattacks has steadily risen, with 16,000 more cyberattacks in 2022 than in 2019. Limited resources could be a major factor in the increase, with the report finding that 48 per cent of SMBs spend less than $500 a year on cyber security. 6
7. Paying too much in financial services fees. Small-to-medium businesses often lack the resources and time to shop around for better rates across financial products, leading to many overpaying when transacting. Research has found that a large proportion pay too much when conducting international trade through a bank. A recent Money Transfer Australia study found that 62 per cent are trading internationally through the big four banks, despite generally higher exchange rate mark-ups and fees in comparison to specialist money providers. Businesses could be paying up to $850 in fees when transferring $20,000 through a bank, whereas a non-bank money transfer provider might charge as little as $100.7 Read the full report here: https://moneytransfer.com.au/are-australian-businesses-overpaying-on-transfers-in-2024/. 

This article is intended to provide general information only, and not financial advice. Before acting on any information in this article, you should consider your individual and business circumstances, and seek independent and professional legal, financial, taxation or other advice to help you determine whether these actions are appropriate for your needs.    
 
About Small Business Loans    
Small Business Loans Australia (smallbusinessloansaustralia.com) is an Australian comparison website providing Australian small and medium business owners with information on the different types of financing options and loans offered by Australian lenders, and how alternative lenders differ from banks. Small Business Loan Australia works with more than 30 Australian lenders and provides loans from $5000 to $1 million. For more information, visit smallbusinessloansaustralia.com)    

1 https://dynamicbusiness.com/featured/3-months-left-a-guide-for-smes-to-navigate-the-upcoming-ir-reforms.html 
2 https://www.rippling.com/en-AU/blog/blog-navigating-upcoming-ir-reforms 
3 https://www.michaelpage.com.au/advice/management-advice/engagement-and-retention/sme-recruitment-making-employee-retention-priority 
4 https://insidesmallbusiness.com.au/technology/digital/small-businesses-are-lagging-behind-when-it-comes-to-digital-transformation 
5 https://asic.gov.au/about-asic/news-centre/news-items/annual-asic-insolvency-data-reveals-increase-in-companies-failing/ 6 https://www.mpamag.com/au/specialty/sme/growing-number-of-smes-have-no-cash-reserves/493953 
7 https://creditorwatch.com.au/blog/business-failures-to-increase-queensland-to-fare-worst/  
8 https://www.exportfinance.gov.au/resources/world-risk-developments/2023/march/australia-small-businesses-vulnerable-to-rising-cybercrime/ 
9 https://moneytransfer.com.au/banks/