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Small business conditions for Q1 have revealed a “modest” improvement for the first time since 2022, according to the small business ombudsman.
SME conditions improve for the first time since 2022: ASBFEO
29 May 2025
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8 minute read
The first quarter of the year has reflected an improvement in small business conditions, rising 0.1 per cent for the first time since August 2022.
The improvement was measured by the Australian Small Business and Family Enterprise Ombudsman’s (ASBFEO) Small Business Pulse and highlighted that over the past 12 months, conditions had deteriorated by 0.9 per cent, but had now stabilised.
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Ombudsman Bruce Billson said the modest lift reflected a shift towards re-pricing as input inflation started to ease, with a longer view on margins, cost containment and growth opportunities coming to the fore of small business owners’ thinking.
“For small and family businesses, higher interest rates not only impact their costs of financing but have profound implications for customers in terms of their spending, preferences and confidence,” he said.
“The Reserve Bank of Australia’s decision to further reduce the target cash rate to 3.85 per cent and moderating inflation pressures provide a ray of light after a prolonged period of difficult conditions for small and family businesses.”
It was noted by Billson that the Small Business Pulse took both demand and supply factors into account, as small business owners were reviewing customer satisfaction, input costs, final prices and ways to increase sales, product offerings and margins.
This also included importing and exporting, such as importing software products and hospitality supplies, to exporting in the retail and agricultural sectors.
Billson said household spending was also showing early signs of recovery; however, remained weak in the hospitality industry.
“Cost of living pressures have constrained demand for a prolonged period, particularly in sectors that rely on discretionary spending such as hospitality. This has made it difficult for small and family businesses in these sectors to increase their prices to protect their margins,” he said.
“There has been a modest uptick in small businesses considering hiring additional staff, particularly in the hospitality and disability support industries. Difficulty finding suitable staff remains an issue, reflecting a persistently tight labour market, and prospects for productivity improvement remain weak.”
In addition, small business owners continued to report difficulty in navigating complex workplace laws and were also turning to AI to find new opportunities and develop plans to grow.
Cash flow remained a significant concern for small businesses, yet according to the pulse, many reported a sense that the worst was over with moderated inflation pressures, improved consumer sentiment and a small uptick in optimism following cash rate reductions.
Billson said cash flow concerns were reflected in the increased requests for ASBFEO help, and payment disputes often being the most common dispute seen by the office.
In multiple cases, a business customer has told a small business supplier that they couldn’t afford to pay them, which could result in an unpaid small or family business with modest cash reserves in a “precarious position”, Billson added.
“The small uptick in optimism of small business owners is magnified in those considering starting a business. These entrepreneurial ideas focus on addressing social and environmental issues such as improving outcomes for vulnerable people, sustainable farming and renewable energy. Queries about starting a business were notably driven by an uptick in current and prospective digital nomads and influencers.”
“We need to do more to energise enterprise and create and nurture the spark that will inspire someone to turn an idea into investment, to build a business, to take on the risk and big responsibility of creating an opportunity generating new enterprise, and to employ that extra person.”
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