Australia's SME Economy Is Splitting in Two on Cash Flow Timing

Australia's small business economy is more divided than it's been in over a decade. The latest ScotPac SME Growth Index, based on interviews with 728 businesses, recorded its most polarised result in 12 years of tracking.

On one side: 59% of SMEs expect revenue growth over the coming months. On the other: 36% are forecasting decline, up nine percentage points from a year ago. The middle ground has almost disappeared. In 2020, 29% of businesses expected flat revenue. Today, just 5% do.

The divide has deepened as Middle East conflict disrupts global supply chains, pushing up freight costs and squeezing businesses with exposure to imported inputs.

What it means

The businesses feeling the most pressure share common characteristics. They operate in construction, agriculture, logistics, or manufacturing. They rely heavily on fuel, freight, fertiliser, or other globally traded inputs. And critically, they have a timing problem: their costs move faster than their cash flow.

"When costs move quickly but cash flow doesn't, that's when pressure builds," says Jon Sutton, CEO of ScotPac. "Businesses that can scale funding up or down in line with their cash flow are far better placed to navigate uncertainty."

The research also points to where SMEs are turning instead. One in three now use non-bank lending for general borrowing rather than growth alone, and 49% report already using asset based lending, with speed, flexibility and avoiding personal guarantees the reasons given.

The businesses on the growth side of the split aren't necessarily in different industries. They've structured themselves to absorb timing shocks. They have cash buffers, flexible working capital, diversified suppliers, and pricing power that lets them pass on cost increases without losing customers.

What to do

If you're a business owner wondering which side of this split you're on, here's how to stress-test your position:

Audit your input cost exposure. List your top 10 costs by dollar value. Which ones are tied to fuel, freight, or import prices? Those are your volatility risks.

Map your cash flow timing gaps. When do your biggest expenses hit versus when customer payments arrive? A two-week gap is manageable. A six-week gap with volatile costs is a problem waiting to happen.

Build a buffer. Even a modest cash reserve covering two to four weeks of operating expenses can be the difference between riding out a cost spike and scrambling for emergency finance.

Review your pricing and contracts. Can you pass on cost increases? Are you locked into fixed-price contracts while your inputs float? Some businesses are absorbing margin compression they don't have to.

Diversify where you can. Single-supplier dependency amplifies risk. Even partial diversification gives you room to negotiate and continuity options.

Consider your working capital structure. Credit cards are a patch, not a fix. Invoice finance, lines of credit, or debtor financing can give you flexibility that scales with your revenue rather than your credit limit.

The businesses thriving right now aren't doing anything exotic. They've just matched the flexibility of their cash flow to the volatility of their costs. In a two-speed economy, that's what keeps you on the right side of the split.

This article is general information only and is not financial advice.