Current SME challenges and how to overcome them

Blog
Monday 20th January 2025

Current SME challenges and how to overcome them

Blog
Monday 20th January 2025
Written by Scott Brooks

Over the past 12 months, we’ve explored some of the many challenges small to medium enterprises (SMEs) face—insights that have been further supported in a recent NAB report called ‘Backing our businesses'. 

The report shares the key barriers to growth straight from the mouths of Australian SME business owners themselves—with proposed policy solutions to overcome them. 

Here are the top concerns they identify in the report, with our suggestions on what you can do as a small business owner to overcome these small business struggles. 

Hiring and retaining staff 

One of the key challenges reported is that SMEs are experiencing difficulties related to skill shortages, high turnover rates, and attracting and retaining talent. 

In FY23, Australian small businesses had a lower vacancy fill rate, with an average of 52%, compared to 59% for medium-sized companies and 65% for large businesses.

Attracting quality candidates with the right mix of skills and qualifications is the main challenge small businesses tend to have (56%), with high wage demands following in second place (39%). 

NABs policy suggestions: 

  • Improve transparency and accessibility of Australia’s skilled migration program for small business
  • Increase flexibility in modern awards for SMEs
  • Assist new SMEs in hiring their first workers

Our advice for business owners:

Take a strategic perspective that includes reviewing your organisational chart and undertaking a gap analysis to see where your team is lacking or what additional resources you need.

Sometimes, the answer can be in front of you. You might have people in your business you can train up and promote rather than recruit.  

Make sure you consider your long and short-term needs. Are you addressing your short-term deficiency or your longer-term business goals and strategy? 

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Too much red tape 

The next challenge identified is too much red tape. This is referring to increased regulatory burdens and the rising cost of compliance. 

The main issues relate to employing workers, compliance around paying wages and entitlements, contracts and legal expenses. Other problems include paying taxes, handling licenses, permits, renewals, and obtaining finance or credit.

NAB’s policy suggestions:

  • Continue investing in and scaling Single Touch Payroll (STP) and other technologies to streamline regulatory compliance processes
  • Ensure tax collection supports both compliance and ongoing business viability
  • Develop right-sized regulation that recognises the challenges faced by SMEs in meeting regulatory obligations

Our advice for business owners:

Systemising your processes can be a powerful strategy in dealing with these regulatory and compliance challenges. Here’s how: 

  • Automate compliance tasks – Use payroll and accounting software, like Xero, to handle taxes, wages, and records automatically.
  • Standardise procedures – Create checklists and templates for tasks like onboarding, contracts and tax filings.
  • Use workflow tools – Organise tasks and deadlines to ensure compliance and avoid missed filings or renewals.
  • Centralise documents – Store compliance-related documents in a secure, easy-to-access digital system.
  • Outsource expertise – Consider hiring experts or consultants to handle complex compliance issues.
  • Train regularly – Provide ongoing compliance training for your team.
  • Conduct audits – Regularly review your systems to ensure they’re efficient and compliant.

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Cyberattacks  

Frequent and severe cyberattacks are another challenge small businesses are facing, according to the report. 

As SMEs, we simply don’t have the scale or resources to defend against them. The impact is substantial time loss and financial setbacks.

One in 10 SMEs has reported an attack in the past 12 months, with small businesses losing an average of $46k and medium-sized businesses $97k per incident.

NABs policy suggestions: 

  • Ease cost barriers to adopting up-to-date cybersecurity technology
  • Expand cybersecurity support from governments, encouraging involvement from industry and the education sector
  • Introduce minimum cybersecurity standards and simplify cyber incident
  • reporting processes
  • Minimise the threat of scams to the Australian community

Our advice for business owners:

If you haven’t considered cybersecurity, it’s not too late. You need to do it!

A cyberattack could be detrimental to your business, especially if someone accesses systems that contain employee, client or financial data. 

The basics include:

  • Implementing strong, unique passwords and multifactor authentication (MFA) across all accounts
  • Limiting access to sensitive data and monitoring for unusual activity
  • Using antivirus software and regularly update all software to patch vulnerabilities
  • Backing up critical data in secure locations, such as the cloud
  • Training staff to recognise phishing attacks and suspicious activities
  • Investing in cyber insurance to help recover any attack costs

It might be worth partnering with a cybersecurity expert to get tailored advice and to ensure you’re fully protected.  

Related: Cyberattacks on small business: how to protect yourself

Digitalisation and AI 

To keep up and grow, SMEs need to go digital and adopt the latest technologies, such as AI, for productivity gains. But, the NAB report identifies issues with the high cost and complexity of doing so. 

Only 25% of SMEs have invested in AI or other emerging technologies. The main issues given are the need for training (48%), lack of time (36%), and a limited understanding of emerging technologies (35%). 32% of small business owners also say the cost of AI is a major concern. 

NAB’s policy suggestions: 

  • Involve SMEs in the delivery of the Digital Government Strategy
  • Improve regional internet connectivity
  • Support digital and data skills learning and development
  • Encourage responsible AI adoption

Our advice for business owners: 

When navigating the challenge of adopting digital tech and AI, take a look at the threats and opportunities they present for your business. 

Adopting digital tools, including AI, can streamline tasks like customer service, data analysis and marketing, improving efficiency and customer experience. These tools can also provide valuable insights for better decision-making and staying competitive.

However, challenges include increased cybersecurity risks and the need for staff training to make the most of technologies. Be strategic about how you integrate them.

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Access to capital 

Another challenge highlighted in the report is the difficulty SMEs face in obtaining funding from lenders to support business growth and maintain financial stability. This includes money for cash flow, growth and plant, machinery and equipment.

30% of small businesses and 25% of medium businesses report it as an issue, compared to 16% of large businesses. 

Related: Business financing: what you need to consider

NAB’s policy suggestions: 

  • Support initiatives to enhance payment times and cash flow for SMEs
  • Increase accessibility to key Commonwealth initiatives
  • Advocate for better access to low-cost finance for First Nations businesses
  • Enable SME acceleration through the loan process

Our advice for business owners: 

Securing funding can be a significant hurdle, but careful planning by business leaders can make a difference. 

Start by clearly understanding your cash flow expectations—are you tracking your income and expenses effectively? Doing regular cash flow projections will help you anticipate financial needs and demonstrate your business’s financial health to potential lenders. 

Also, consider whether there are opportunities to bring capital into your business, whether through investors, grants, or other funding sources. 

Resilient supply chains 

The final challenge identified in the report is being able to effectively deal with disruptions in the supply chain caused by variable supply and demand fluctuations. While this is an issue for all-size businesses, SMEs feel the effects the most. 

Some of the main factors contributing to this include not having prioritised vendor status (50%), limited ability to switch vendors (45%), can’t meet the minimum size order (42%) and can’t pay premium prices (41%). 

NAB’s policy suggestions:

  • Encourage further action to meet the Federal Government’s SME procurement targets
  • Ensure that SMEs, First Nations and regional and remote businesses are adequately consulted in the delivery of the Buy Australia Plan
  • Strengthen partnerships and procurement programs for First Nations SMEs
  • Adopt a SME lens in a Future Made in Australia’s procurement and investment
  • process 

Our advice for business owners:

Being reliant on a single supplier can lead to serious disruptions. To mitigate this risk, always have a Plan B in place—identify alternative suppliers or sources for critical materials. 

Additionally, consider adjusting your payment terms, such as negotiating to pay for goods only upon receipt rather than in advance. This can help protect your cash flow and reduce the financial impact if a supplier fails to deliver. 

Related: How to balance the scales of demand and capacity

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Turn this advice into action

Running an SME certainty isn’t for the faint-hearted. There are plenty of challenges to face that larger established businesses don’t. Hopefully these suggestions give you some helpful advice to drive business success.

Read the full NAB report

If you want to chat about the challenges of your SME or new small business and how to best overcome them, contact your Maxim advisor or reach out to our team today