Outsource to Reduce Cost Pressures: Survive to Thrive Jan 6, 2025
In today’s challenging economic landscape, small and medium-sized enterprises (SMEs) in Australia are facing a monumental survival test. According to the latest ScotPac SME Growth Index Report, escalating cost pressures and assertive collection activities by the Tax Office (ATO) are pushing thousands of SMEs toward insolvency.
But here’s the silver lining: with the right strategies and guidance, your business can overcome these hurdles.
Why SMEs Are Feeling the Squeeze
The numbers don’t lie—2024 was a tough year for businesses worldwide. The Corporate Insolvency Index revealed some worrying trends:
- Over 11,000 businesses went insolvent globally, marking a staggering 39% increase from the previous year.
- In Australia, court-ordered liquidations rose by 99%, and the ATO issued nearly 27,000 director penalty notices, amounting to $4.4 billion in outstanding payments.
- A striking 25% of Australian SMEs said they could face insolvency risk with the sudden loss of just one key client or supplier.
The Cash Flow Conundrum
One of the biggest concerns for SMEs is cash flow management. The report found that:
- 50% of SMEs said they would face severe cash flow issues lasting three months or longer.
- 4% of businesses admitted they’d need to shut down immediately in such a scenario.
- Only 21% of SMEs felt confident they’d remain unaffected.
Clearly, these numbers show how vulnerable businesses can be to sudden disruptions.
How to Navigate These Challenges
Jon Sutton, CEO of ScotPac, highlights a crucial point: SMEs that seek professional guidance early are better positioned to recover from financial stress. Whether it’s tackling escalating costs, managing ATO debts, or preparing for unforeseen disruptions, professional advice can be a game-changer.
Enter: Outsourcing
One proven way to reduce cost pressures is by outsourcing non-core activities. By delegating tasks like payroll, IT support, and even customer service to external experts, SMEs can:
- Lower operating costs.
- Free up internal resources to focus on growth.
- Mitigate risks associated with thin margins and tight cash flow.
The Role of Professional Advisors
Brokers, accountants, and restructuring practitioners can offer tailored strategies to help businesses weather storms. For instance, small business restructuring has emerged as a vital survival tool. Sutton emphasized that this approach allows companies with liabilities under $1 million to collaborate with restructuring experts while maintaining control of their business.
And the results speak volumes:
- According to ASIC data, 89% of companies that entered restructuring between January and July 2024 and completed their plans are still registered and operational.
Plan for the Unexpected
Another key takeaway from the report is the importance of planning for unforeseen disruptions. Sitting down with your advisors regularly and mapping out contingency plans for scenarios like losing a key client or supplier can mean the difference between survival and closure.
Thriving Beyond Survival
While the economic climate remains challenging, SMEs have a unique opportunity to thrive by leveraging available support and resources. Here’s what you can do today:
- Evaluate outsourcing opportunities: Identify non-core functions you can delegate to reduce costs.
- Seek professional advice: Work with brokers or advisors to address cost escalations and ATO debts.
- Plan for disruptions: Create a robust cash flow plan that accounts for potential risks.
- Explore restructuring options: If your business is struggling, don’t wait—explore small business restructuring to keep control and collaborate with creditors.
The road ahead may be daunting, but with the right strategies and support, you can transform challenges into opportunities. Remember: surviving today lays the foundation for thriving tomorrow.
Are you ready to thrive? Start by outsourcing smartly and planning strategically—you’ve got this!