iscoverA new report found that conditions for small businesses (SMEs) increased by 0.6 per cent in August 2025 - the second consecutive quarterly increase, and increased by 0.2 per cent over the past 12 months.
SMEs cautiously optimistic about business conditions
02 September 2025
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8 minute read
Recently, the Australian Small Business and Family Enterprise Ombudsman (ABSFEO) released its Small Business Pulse for August 2025, a health check of objective vital signs for small business while also considering the “animal spirits” that drive decision making. In these findings, ABSFEO reported a continued focus on cost containment and protecting long-term margins.
The Ombudsman, Bruce Billson, said: “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.”
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He added: “The Reserve Bank of Australia’s decision to further reduce the target cash rate to 3.60 per cent and moderating inflation pressures have supported the shift in SME owners’ focus from survival to durability and growth. This includes comparing options for financing investment in current small businesses and start-ups.”
The report found that SME owners preferred in-person engagements compared to online tools and resources, when they sought future business prospects. Based on the findings, these owners have begun to diversify their business, especially those who faced prolonged periods of tough conditions, said the Ombudsman.
He said that this demonstrated “cautious optimism” after years of turbulence in the past few years.
Shifting priorities
The Ombudsman identified a shift in priority from staffing availability to costs, which it said, led SMEs to seek novel ways to provide employment opportunities to members of the community through an increase in part-time and flexible working arrangements to name a few.
In the operating environment, a refocus was made from staffing availability to costs. “Concerns about regulatory requirements have increased across a wide range of areas including employer responsibilities and superannuation, insurance and business registration and licensing requirements,” it added.
This quarter, the challenges SMEs faced included “workplace laws, privacy duties, workers compensation and payroll tax obligations.”
The findings revealed that these issues had the potential to constrain growth. SME owners continued to report their struggle understanding insurance requirements and accessing suitable affordable insurance.
“Sole traders continue to query tax reporting and deduction rules, while inquiries about the tax implications of ‘side hustles’ have increased, including whether to disclose ‘exploratory’ endeavours such as a one-off market stall,” it said.
Pressures from high business costs remained a concern for these owners, where the report found that they “continue to research options to reduce high business expenses across their operations.”
“This ranges from researching alternative wholesale suppliers, utilities, and freight options to proactive controls such as inventory management, particularly cloud-based options. Research on finance options to ensure cash flow has increased, including invoice factoring,” it continued.
Impacts following disaster
ABSFEO noted insolvency levels have returned to trend levels and the pulse has reflected this risk. They remained high, it said, notably with unincorporated businesses beginning to rise. Regardless, these figures remained lower pre-pandemic levels in nominal terms.
Based on the research, distress stayed high despite the dip in financial difficulty related enquiries from SME owners.
“The rebuilding of business optimism and vitality isn’t marked by a single moment, but by a series of small, upward steps,” said Billson.
He added: “That’s why we have proposed 14 Steps to ‘energise enterprise’ designed to improve the prospects of success for the nation’s 2.59 million small businesses.”
The Ombudsman maintained: “The lasting impact of natural disasters compounds these pressures for many small businesses.”
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