More than half of Australian businesses will make staff cuts, in the event of a recession

With CBA and HSBC recently placing odds of a recession at 50 per cent, many Australian businesses are on tenterhooks, wondering if they will need to revise their business spending. New data reveals that more than half (55%) of small to medium business will cut employee related expenses first in the event of a recession increasing unemployment and putting greater strain on the cost-of-living crisis for ordinary Australians.

These figures have been revealed in a new survey of an independent panel of 202 business owners and decision makers across the full SME spectrum by business loan comparison site Small Business Loans Australia.

Employees at medium-sized businesses are at most risk.

Nearly a quarter (23%) of medium-sized business owners would make immediate cuts to their staff in an event of a recession.

Four in five (77%) medium sized business owners would make cuts directly affecting their employees, this includes cutting both internal and outsourced staff, decreasing employee spend, pay cuts for senior leaders and cutting opportunities for business travel. Both medium and micro-sized businesses, would be the first to cut internal staff at 23 per cent and 21 per cent of businesses admitting doing so, respectively.  

Alon Rajic, Founder and Managing Director of Small Business Loans Australia, says: “Smaller businesses may be less likely to cut internal staff due to operating leaner teams, where everyone is vital to the day-to-day operations. They often also have stronger interpersonal ties between employees and managers, making it challenging for smaller business owners to consider laying off internal staff.”

 

Business owners are reluctant to make cuts to their salaries.

Interestingly, business owners admitted to prioritising their own salaries over the job security of their employees. Only 5 per cent of business owners would consider implementing pay cuts for senior leaders, including themselves, during a recession. By Contrast, a third (33%) would prioritise staff redundancies as a cost-saving measure.

Almost 3 in 4 South Australian businesses will make employee cuts.

South Australian businesses are most likely to make business cuts that will affect their employees (73%), compared to 51 per cent of Victorian SMEs, which is the state least likely to make employee cuts. With 955,861 SMEs in Australia[1], a significant proportion of the working population will be impacted by job cuts at a time that will hurt them the most, with cost of living hitting records highs.

“We know that more than three-quarters of SMEs expect their cash flow to be affected by the current economic climate[2]. When it comes to a recession, smaller businesses face similar risks as their larger counterparts, but their limited scale leaves them more vulnerable and increases the risk of failure in a downturn. It's important for business owners to start considering the potential risks now, and think about what actions they might take, considering the impact on their business as well as for their employees," shares Alon Rajic.

The full survey results, including breakdowns across business sizes and states, can be found here: https://smallbusinessloansaustralia.com/what-are-the-first-cuts-businesses-will-make-in-a-recession/

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