Zoho reveals SMEs confident about cash flow in 2025, despite 2024 challenges
Despite persistent economic pressures that have forced the millions of Australian small businesses to increase their prices to protect their bottom line, there’s growing optimism about better things to come in 2025. New research from Zoho, a global technology company, found that nearly half of Australia’s small businesses are expecting their cash flow will increase in 2025.
Zoho's research - the Financial Health of Australian Small Businesses - set out to understand how economic pressures such as inflation and interest rates have impacted Australia’s 2.5 million small businesses in the last 18 months, and how they expect to fare in the next 18 months. Interest rates and inflation have remained consistently again in 2024, with ASICs data revealing over 11,000 businesses entered insolvency in FY2023-24. Small businesses, who don’t have the same resources or budgets as bigger businesses are disproportionately affected. Zoho’s research reveals that 89% have seen their operating costs increase in the last 18 months.
As a result, 78.1% have been forced to increase their costs to protect their bottom line, but are seeing a subsequent reduction in customer spending. Almost three quarters of small businesses (73.9%) have seen their revenue slow, with four in ten saying it has slowed ‘significantly’. In spite of these headwinds in 2024, there’s growing optimism that we’ve reached an inflection point, with almost half (46.6%) expecting their cash flow to increase in the next three to 12 months. Even more are optimistic about their growth opportunities beyond that.
“Small businesses are the backbone of Australia’s economy, driving innovation, creating jobs, and fueling local communities,” said Rakesh Prabhakar, Head of Zoho Australia and New Zealand. “However, many are facing a perfect storm of rising operational costs, interest rates, and ongoing supply chain disruptions, creating an environment that remains incredibly challenging. As a result, many small businesses have no choice but to pass the increased costs onto their customers.”
Despite pressures, confidence rising
Over the past 12 to 18 months, 60.8% of small businesses said their operating cost increased by up to 20%, while an additional 20.7% experienced cost surges of 21% to 40%. Alarmingly, 7.6% saw their costs increase by at least 41%. It’s being driven by a myriad of factors. More than half (51.4%) of small businesses identified rising material costs as their primary expense driver, followed by wages (41.4%), rent (32.7%), and increasing utility costs (30.5%).
Despite that, almost twice as many SMBs expect cash flow to increase compared to those who expect it to decrease (46.6% vs 26.9%) in the next 3-12 months. Longer-term, 29.3% of SMBs “see a lot of growth opportunity” in the next 12-18 months, while 33.7% are cautiously optimistic and believe they’re “recovering nicely”.
“Despite these challenges, green shoots of optimism are beginning to appear. Inflation recently hit a three-year low, while there is growing optimism that 2025 could see a series of rate cuts that - along with tax breaks in July - will boost consumer spending. We’re seeing this play out in our research, with almost half of small businesses forecasting an increased cash flow. Considering how much small businesses contribute to Australia both economically and socially, this positive indicator is very welcome,” says Prabhakar.
Of those that are forecasting a reduction in cash flow in the next 3-12 months, the implications are varied. One in three 35% are certain they’ll be able to avoid cost cutting for at least 12 months, while 37.4% can meet their outgoings for six months without being forced to consider cutting costs. However, 6.9% are already in a cost-cutting phase, and would be forced to seek support if costs slow further.
"As has been the case for so many businesses, 2024 has presented its fair share of challenges,” said Jeeva Sanjeevan, Director at Light & Glo. “However, despite contending with rising costs and shifting customer habits, we’ve tackled the challenges head-on and emerged stronger. Partnering with corporate clients and supporting local community projects, like soccer clubs, has been key to our resilience and has helped deepen our local roots. As an Australian-made brand, we’re proud of our heritage and our commitment to the community, and our community is responding. It’s for this reason that we’re feeling optimistic. While we know challenges will continue, we’re confident about the future, thanks to our solid strategy and the technology that underpins our operations in Zoho. With the peak holiday season upon us, we’re ready to build momentum and set the stage for a successful 2025."
Investing in technology for growth
As small businesses seek to increase cash flow or mitigate the impact of economic pressures in 2025, technology will be critical. When asked what their urgent considerations for 2025 were, the second biggest priority - after simply keeping their business afloat - was to automate or digitise their business.
When it comes to their most important technology investments, two in three (67.1%) small businesses said accounting and bookkeeping software. That was followed by marketing automation software (64.1%), a Point of Sale (POS) system (56.2%), a website (51.8%) and Customer Relationship Management (CRM) (45.4%).
“It’s perhaps unsurprising given the economic situation, to see the nature of technology that small businesses are prioritising,” Prabhakar continued. “Small businesses are investing in solutions that are focused on managing their financial bottom line and generating revenue and profitability. Amongst the Zoho technology stack, which contains over 55 apps across every business department, we’re seeing particularly strong growth in tools focused on growth. In fact, in Australia, the average customer uses 18.22 Zoho apps to optimise their operations, seize opportunities and overcome challenges. Through the combination of technology and cautious macroeconomic optimism, millions of small businesses have the foundation to navigate today’s pressures and position themselves for sustainable growth.”
