With speculation that hundreds of businesses – dubbed ‘zombie businesses’ – are being propped up by Government stimulus and will potentially fold in September, new figures suggest that the problem could we bigger than we anticipate. New research reveals that 62 per cent of SME business owners have been on the brink of folding their businesses in the past due to financial and other struggles. Seventy-eight (78) per cent of owners say they have made major sacrifices for the survival of their businesses. If they knew then the challenges they would go through, just 56 per cent of owners say they would still have opened their business.

The findings come from an independent survey of 261 Australian business owners (88 per cent of which are SMEs) commissioned by free online financial information platform Money.com.au. The full survey results, including breakdowns across business size and location, can be found here: money.com.au/fragility-of-small-businesses

In the survey, Money.com.au asked business owners if they had thought about closing due to challenges within, and external pressures on, the business. Just 38 per cent of business owners have never considered business closure. A concerning 32 per cent said they have occasionally been at this point, 8 per cent answered often, and 23 per cent answered rarely. 

Respondents were asked to nominate the major challenge that motivated them to consider giving up the business. One in three (35 per cent) nominated financial issues as the number one challenge. This includes cash flow problems, the most common of all the challenges (chosen by 16 per cent of respondents), inadequate revenue or profit (11 per cent of respondents), and poor customer acquisition and retention (8 per cent of respondents).

Fourteen (14) per cent of respondents said issues with people in the business had been the challenge that motivated them to consider closing. This includes employee issues (chosen by 10 per cent of respondents) and business partner or investor issues (4 per cent of respondents). 

Personal issues and lack of work-life balance were the major challenges that prompted a further 14 per cent of business owners to consider closing.

Seeking to understand the impact of these challenges on the business owners themselves, Money.com.au asked respondents if they made significant sacrifices to start, operate and grow their businesses. Just 22 per cent of respondents said they did not make major sacrifices.

Some of the sacrifices that 78 per cent of business owners did make have altered their lives. A significant 40 per cent admitted they spent less time with their family than they normally would, while 13 per cent delayed important life milestones such as having children or buying a house. Thirty (30) per cent said that, for years, they paid themselves less than market rates. 

Forty-one (41) per cent sacrificed their social lives and time with friends, 28 per cent sacrificed personal leisure time by working many nights and weekends, and 14 per cent have not attended some important personal-life events such as family weddings. 

Money.com.au asked respondents would they go through the business journey again if they knew the challenges they now know. A worrying 19 per cent said they would not have started their business at all, and a further 25 per cent are undecided.

Money.com.au spokesperson and licensed financial advisor Helen Baker, says: “Understanding the fragility of Australian small businesses can help us gain insight into the potential devastating consequences the pandemic will have on the sector.

“It is important that our governments understand how vulnerable SMEs are to external influences, and yet how crucial the sector is to our economy. Small businesses deliver 35 per cent of Australia’s GPD and employ 44 per cent of our workforce. The government and public were shocked to see queues outside Centrelink offices right after business shutdowns were mandated, and today millions are on JobSeeker or JobKeeper.

“The Money.com.au survey gives some insight into why these numbers are so high: with cash flow and low income bringing major ongoing challenges, there is no way all small businesses can absorb losses from enforced closures. The survey also gives us an insight into the mental, emotional and physical impacts that business owners have dealt with to keep their ventures going. The government should continue to prioritise small business in its support measures throughout the coming months, closely monitoring how the sector is responding to those measures, as well as the shutdowns, along the way.”

The full survey results, including breakdowns across organisation size and location, can be found here: money.com.au/fragility-of-small-businesses

Money.com.au, 22^nd June 2020