Small and medium-sized enterprises (SMEs) are under growing financial pressure as rising wages, inflation, and weak consumer demand collide.
But despite the tough conditions, many are holding firm – backed by resilience, adaptation, and proactive cost strategies.
According to new reports from CommBank, ScotPac, and Equifax, the first half of 2025 has tested the limits of small business endurance, with major cost increases looming from July 1.
These include a 3.5% minimum wage rise and an increase in the superannuation guarantee to 12%, further straining operating margins.
Justine Dalrymple, owner of Front Room Hair in Sydney, said small businesses like hers face the challenge of staying competitive without raising prices.
“The rising cost of running a business which uses high-quality products is tough,” Dalrymple said. “We can’t cut costs, and we can’t pass rising costs on to the customer.”
Instead, many SMEs are seeking savings elsewhere – shopping around for better utility deals, reviewing software subscriptions, and improving efficiency.
CommBank’s recent research found that 90% of SMEs experienced cost increases in the past year, yet 63% still feel optimistic about their business outlook – albeit down from 71% in late 2024. Meanwhile, nearly two-thirds still plan to grow, showing cautious confidence despite headwinds.
“Running a business today continues to be tough,” said Rebecca Warren (pictured left), executive GM of small business banking at CommBank. “But the recent reduction in interest rates has been welcomed.”
She said many SMEs are turning to tactics like automation, outsourcing, and utility comparisons to rein in overheads.
Ahead of the July cost hikes, SMEs are also rethinking how they hire and retain staff.
According to ScotPac’s SME Growth Index, 45% of SMEs plan to increase their use of contractors, continuing a trend away from full-time employees. Other responses include:
“The imminent wage and super hikes are prompting SMEs to look at staffing levels and, in some cases, make difficult decisions,” said ScotPac CEO Jon Sutton (pictured centre).
Sutton stressed that the right financial tools – like invoice finance – can help businesses stay afloat by unlocking faster access to cash tied up in invoices.
Adding to the concern, Equifax data showed signs of strain across key metrics:
“Small businesses are facing soft customer demand along with inflation and global supply chain disruptions,” said Moses Samaha (pictured right), executive GM at Equifax. “Higher energy and wage costs could well be a tipping point.”
Equifax warned that insolvencies are on track to double the historical average, especially among micro businesses with fewer than 20 employees – who account for three-quarters of business collapses since 2021.
Despite recent rate cuts by the Reserve Bank, the hoped-for boost in consumer spending hasn’t materialised.
“The effectiveness of interest rate cuts hinges on a sustained recovery in consumer spending,” Samaha said. “So far, the data suggests that consumers are saving rather than spending.”
Even though credit card and BNPL demand is up 15%, this may indicate financial stress, not confidence. Discretionary spending remains soft, especially in the food and beverage sector, which has seen a 9.4% closure rate over the past year.
As FY25-26 begins, Australia’s small business sector faces a perfect storm of rising costs, weak demand, and tighter credit. But resilience, innovation, and targeted support may help many navigate the turbulence.
“It is possible for SMEs to continue to grow and support their teams – even as employee costs rise,” Sutton said.
“There are some emerging positive signals,” Samaha said. “But for now, cautious optimism remains the most realistic outlook.”
