"Trends signal a very real threat to the future of the SME sector"
The growth of small and medium enterprises (SMEs) is on a downwards slope, with the year-on-year employee growth rate almost halved from 11% in April 2023 to just 6% in April 2024, according to Employment Hero’s latest SME Index.
SME insolvencies are at an all-time high, with major retail and hospitality businesses closing down, including an estimated 5,000 restaurants predicted to shut within the next 12 months.
This slowdown is particularly evident in Victoria, where SMEs experienced the weakest annual growth at 5.6%. In contrast, South Australia and Western Australia lead with annual growth rates of 8.4% and 8.2%, respectively, showcasing regional disparities in business climates.
The Employment Hero report also revealed that certain industries face more significant challenges. Retail, hospitality, and tourism sectors show modest growth, increasing by 5.4% year on year, with a marginal 0.5% month-on-month rise.
Construction and trade services mirror this trend, with 5.2% year-on-year growth and a 0.4% month-on-month increase. In stark contrast, the healthcare and community services sector outperform significantly, with a 9.1% annual and a 0.6% monthly increase.
Employment Hero also found that wage growth is accelerating at an unsustainable rate, with wages up by 7.8% annually and 2.2% monthly in April 2024, more than doubling the 0.9% growth seen in March 2024. This surge in wages, the employment platform said, reflects ongoing inflationary pressures that could impact the profitability and sustainability of SMEs.
The median hourly rate now stands at $39.21, up by 2.2% from $38.34, further emphasising the cost pressures businesses face in retaining talent. The disparity between wage growth and slowing employee growth raises concerns about the long-term sustainability of current wage levels.
“These trends signal a very real threat to the future of the SME sector,” said Ben Thompson (pictured above), chief executive and co-founder of Employment Hero. “If the growth rate continues to decline while wages and operational costs rise, we could see a significant number of SMEs struggle to survive.
“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. It’s imperative that we address these issues head-on to ensure the sector remains robust and capable of driving economic growth.”
Meanwhile, median hours worked saw a monthly increase of 3.9%, yet they are still down 1.2% annually. This annual decrease, despite the monthly rise, suggests a certain degree of seasonality. However, the combination of rising wages and fluctuating work hours poses additional challenges for SMEs striving to maintain productivity and profitability in a volatile economic environment.
“Our latest SME Index reveals the sector is at a crossroads,” Thompson said. “While growth exists month on month, the overall trend is downwards. I fear things may worsen before they improve. Accelerating wage growth and fluctuating work hours point to underlying economic tensions that need to be addressed.
“While last week’s Federal Budget provided some much needed support for SMEs, it’s simply not enough to prevent what very well may be the most serious threat to small business creation in some time.
“Our policymakers and business leaders need to navigate these complexities and implement better support initiatives to sustain the sector’s vitality and ensure balanced economic growth. The coming months will be critical in determining whether certain SMEs can adapt to these challenges or closure altogether.”
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