Ready for 2024? Small business experts predict this year’s storylines

Constrained consumer spending, interest rate anxiety, and sheer exhaustion are likely to weigh on small businesses in 2024, advocates say, as entrepreneurs seek opportunity in what could be another challenging year.

After a bruising 2023, which saw inflation stretch profit margins and business insolvencies surge, a new report from the Council of Small Business Organisations Australia (COSBOA) and Square points to weakened consumer spending through the new year.

Median spending across every sector is slower in January 2024 than in January 2023, the data shows, as consumers close their wallets after the Christmas and Black Friday sales.

Median changes to Australian consumer spending habits over time. Source: Square / COSBOA

Consumer spending is likely to dip further into 2024, the report states after 69% of survey respondents reported cuts to their discretionary spending in the final months of 2023.

Slowing consumer activity — excluding the end-of-year sales bonanzas — appears to be flowing into the labour market, which remains tight but showed signs of slowing in December.

Through that broad-based slowdown, the travel, hospitality, and entertainment industries may fare better than other consumer goods categories in 2024.

“The relative stability of spending on entertainment and transportation correlates with consumer research conducted in November 2023, where individuals indicated that the three areas, they would most likely spend more on in 2024 were food and drink, entertainment and travel and experiences,” the report states.

Business exits a worrying trend

Among leaders and advocates in the small business sector, there is a sense the mounting cost of doing business — spanning everything from insurance hikes to interest rates and rental prices — will push many businesses to the brink in 2024.

Sobering projections from CreditorWatch suggest business closures will ramp up in the first half of 2024, as the full effect of surging costs in 2023 bears down on local traders.

The rate of external administrations is picking up pace, as pandemic-era leniency from creditors, including the Australian Taxation Office, draws to a close.

“The fact that almost every sector has seen double-digit increases in the rates of business failures across 2023 is truly shocking,” Patrick Coghlan, CreditorWatch CEO, noted last month.

“When this is viewed in the context of our other key business risk indicators, such as the steep decline in the average value of invoices and the rise in B2B payment defaults, it is shaping up to be a very challenging 2024 for Australian businesses.”

Beyond external insolvencies, business exits have already accelerated over the past 18 months.

The most recent Australian Bureau of Statistics (ABS) data shows net business entries of just 0.8%, or just under 20,000 businesses over 2022-2023, compared to net growth of nearly 168,000 the year prior.

More than 386,000 businesses exited the market last financial year, 81,000 more than the yer prior.

Policy overhauls for small business

Significant policy changes are set to alter how businesses operate through the year.

The federal government has positioned its numerous competition policy reforms, from the outlawing of unfair contract terms to an $8 million funding injection to support small business payment times, as prudent and cost-effective wins for the small business sector.

Last year’s surprise passage of industrial relations reforms will also be felt by the small business sector.

That includes ‘same job, same pay’ rules — where employees, unions and host employers can apply to the Fair Work Commission to ensure labour hire workers are paid in line with the host’s enterprise agreement or relevant award.

Those regulated orders will come into effect from November 2024 (small business employers with under 15 employees are exempt).

Small businesses also have until January 2025 to become acquainted with the federal criminalisation of wage theft, and a formal code of conduct that will protect small employers from criminal prosecution in cases of genuinely accidental underpayment.

The federal government has positioned those changes as common-sense reforms designed to improve the rights of employees and fairly boost their pay packets.

But bringing small businesses up to speed in 2024 will take some effort, COSBOA CEO Luke Achterstraat has said, adding to the operating challenges faced by entrepreneurs in the new year.

“As we sit in the eye of the storm, amidst this economic upheaval, Australia is faced with a critical decision: Do we abandon our small business community to the mercy of the storm, or do we guide them to safer waters?” Achterstraat said in the Square report.

The debate over the second tranche of reforms is set to dominate Parliament in early 2024, presaging even more new obligations through 2024 and beyond.