Australian SMEs face a unique challenge in 2023. Inflation’s impact on businesses cannot be understated. And, whilst it is falling, it remains almost 7% heading into Q2. Recession is likely to hit many major economies around the world, and Australia isn’t necessarily the exception here like it often has been.
On the one hand, Australian startups and small firms have incredible new opportunities. Markets are opening up, technology is evolving, and the remote-friendly business environment is making things more accessible for entrepreneurs. However, robust growth and impenetrable consumer confidence seems to be a thing of the past currently, making the situation extremely difficult for businesses. The initial consideration here is inflation.
The impact of rising inflation in 2023
Around a year ago, the Australian Bureau of Statistics reported that over half of all businesses have experienced recent increases in business costs. Today, that figure is even higher. Labour costs are rising, making it difficult to not be understaffed, along with rising supply and delivery costs.
However, these rising costs are having implications elsewhere, too. Retail spending fell towards the end of last year and hasn’t really gotten going since. As Australia flirts with a recession, SMEs face less-than-confident consumers whilst seeing their rates and supplies skyrocket.
Whilst Australian businesses shouldn’t immediately surrender to a difficult environment by no longer marketing their products or downsizing, cost-cutting does need to be at the forefront of the mind in 2023. Investment may be down at a time when debt is expensive, so cheap money is no longer the solution, though debt can still be a useful tool in the right situation. So, this leaves SMEs with focusing on optimisation, where costs may be cut, but not necessarily to the detriment of productivity, sales, or marketing.
5 Australian SME cost-saving strategies
Leveraging technology for cost reductions
AI is quickly developing. Almost every day over the past month, something groundbreaking has been released. Whilst SMEs may not be looking to invest capital into new tech, many new services are open-source and/or free. Beyond AI, there is a growing list of SaaS companies for just about any and every department and process in 2023. Often, it’s the legacy systems that are actually costing businesses more than they realise, and switching to newer cloud-based technology, or simply outsourcing certain jobs, can save a company a lot of money.
For example, switching to a cloud-based management system could prevent the constant depreciation and upgrades of expensive hardware. Not only does this reduce periodic expenses, but it opens up the door to more remote work opportunities. And, access to international employees can also be an effective way to cut your payroll whilst boosting productivity.
Automation
Making use of new technology isn’t just about being more efficient or cutting out older, pricier legacy systems. Implementing new tech can also mean automating certain processes to reduce labour costs and minimise human mistakes. Some new breakthroughs make it easier to automate administration, accounting, marketing, customer relations and service, as well as graphic design processes.
For example, generating illustrations for your newsletter can be done via an AI image generator, whilst the newsletter itself can be templated and scheduled using an email SaaS service. Even the copy within it can be AI-generated now. This may mean having one marketing manager to oversee and edit AI processes, as opposed to a team of 3 creating everything manually. If making redundancies is off the table, then the reward will be greater productivity and sales.
Better manage your inventory
When current liabilities and operational costs are high, it’s best to stay as liquid as possible to help meet all short-term outgoings. One way to do this is to cool off on having high levels of stock. By reducing your inventory levels, you can reduce storage and handling costs, as well as minimise obsolete and unsold stock.
To help optimise your inventory management, making use of inventory management tools and systems can go a long way. Again, heavy infrastructure may require too much investment at a bad time, but some lightweight cloud-based solutions have low initial costs and super-efficient onboarding processes. This could, in turn, help reduce the time spent on inventory management too.
Optimise your supply chain
One of the most effective ways to cut costs is to better optimise your supply chain management. However, this is even more pertinent in today’s environment where supply chain issues exist, as well as a general migration away from China and into other regions such as South East Asia. Both opportunities and threats are rife. And, with high geopolitical tensions, pragmatism is required in such a volatile environment.
Seeking out alternative reputable suppliers as well as negotiating with current ones can help immediately reduce your costs, not to mention the lower inventory levels strategy. However, something to consider in contradiction to holding less stock is that there may be preferential transportation and handling costs for larger orders. A possible way to achieve both, though, is to consolidate your purchases with one supplier. That way, both order volume and cost per item may be able to come down.
Budget management for SMEs
Inflationary pressures can lead to higher costs for inputs and raw materials, so it's important to keep a close eye on your expenses. Keep track of all your expenditures and identify areas where you can cut back or make changes to save money. Because prices change quickly, in particular with energy, logistics, and supplies, it’s important not to rely on an outdated budget review - even a review 3 months ago could now be obsolete. In fact, it’s wise to compare the current budget analysis with a previous one. If you know any indirect competitors or similarly structured companies, collaborating to discuss budgeting together can be mutually beneficial.
After assessing how costs have changed and how they match up with your forecasted income, this is where other areas to cut costs can be highlighted. Marketing campaigns, for example, may now be producing a lower return on their investment due to the struggling economy (or it could be better, with competitors pulling out of the race). Or, perhaps you may see that outsourcing for SMEs is typically cheaper than your current in-house payroll.
Balancing employee well-being with cost-cutting
Benefits and cost-cutting can often seem like two things in opposition to each other, but it’s not totally true. The first thing to concede, of course, is that your business cannot operate if employee wellbeing, and subsequently benefits, are neglected. In fact, it will end up costing the business more money because productivity will fall, customer satisfaction may fall, and recruitment costs can rise. So, employee perks and retention must remain integral.
But, it’s equally important to consider how to optimise employee benefits as to get the most bang for your buck.
Novated lease benefits
A novated lease is a good example of optimising employee benefits. The lease refers to an employee car lease, as opposed to an employer being responsible. The benefit of this is that the lease payments are made through salary sacrifice, which reduces the employees’ taxable income (and thus reduces tax). In other words, the employee is left over with more money through this scheme than if they were to have a car lease outside of work. Whilst the employer bears some administrative time and costs, it’s fairly minimal - and certainly less than what is gained for the employee.
This is why it’s a good example of getting a boost in welfare for little-to-no extra cost. With the help of a novated lease calculator, we can see that an employee in Queensland earning $100,000 p.a. can save over $12,000 in tax when leasing a $50,000 EV across a 3-year period.
Review your benefits
It’s important to ensure that your current set of benefits are having their desired impact, and review which ones are costing you the most money. Some may be obsolete or less useful than when first implemented, for example, or new alternatives may have arisen. Many wellness programs are now less useful than 10 years ago due to the millions of apps and free YouTube content there is. Meanwhile, physical health may be a greater focus after the pandemic, so resources may now need to be focused there. Of course, asking your employees for their thoughts is going to help ensure that the benefits budget is efficiently allocated.
Energy consumption
Adopting energy-efficient practices and investing in green technology can simultaneously help cut long-run costs whilst improving sustainability credentials. Sometimes, eco-friendly business practices bear a short-term cost that isn’t ideal to immediate cost-cutting. However, there are many initiatives out there to help bear some of the initial costs. Currently, small businesses that install small-scale renewable energy systems will receive a benefit under the SRES scheme. Generally, though, some investments are minimal to make regardless, such as switching to LED lighting.
Final Word
Australian SMEs must take proactive steps to saving money in 2023. The business environment is rapidly changing with the introduction of AI, and whilst there may be many opportunities (and threats), insolvency remains an SMEs greatest threat - particularly in today’s economic environment.
Australian SME cost-saving strategies vary far and wide. Now is the time for companies to embrace these cost-saving strategies and build a more resilient and sustainable business model for the future. By doing so, they will be better positioned to withstand economic uncertainties and continue to grow and succeed in the years to come.
