Australia's small businesses are entering the new financial year in defensive mode, with new research showing growth ambitions have fallen to their lowest level in the past 12 months as rising costs, loan stress and weak hiring weigh heavily on confidence.
The latest Fifth Quadrant SME Sentiment Tracker found only 25 per cent of small and medium-sized enterprises (SMEs) are planning for growth over the next year, while 21 per cent expect to downsize or exit altogether. That leaves net growth intent at just four per cent, well below the 12-month average of 18 per cent.
Although sentiment towards the Australian and global economy improved slightly during June, the report found this optimism has yet to translate into confidence within individual businesses.
Instead, SMEs are focusing on preserving cashflow, protecting margins and maintaining stability rather than investing in expansion. Financial pressure is also increasing, with loan stress rising to 10 per cent during June while expectations of higher wages reached their joint highest level in the past 13 months, placing further pressure on already stretched businesses.
Revenue also remains under pressure, with 24 per cent of businesses reporting higher revenue than a year ago compared with 34 per cent reporting lower revenue. Profitability has weakened, with just over half of SMEs reporting a profit during June and almost one-quarter operating at a loss.
Employment intentions also remain subdued. Only nine per cent of SMEs currently have vacancies, while just 16 per cent expect revenues to improve over the next four weeks. The report noted that hiring demand has steadily declined over the past three years, with the proportion of SMEs recruiting falling from 22 per cent in FY24 to 11 per cent in FY26.
For the automotive sector, the findings point to continued challenging trading conditions for independent workshops, body shops, parts suppliers and other automotive SMEs. Like the broader small business community, these businesses are likely to face ongoing pressure from rising labour costs, subdued consumer spending and cautious investment, while recruiting skilled staff remains difficult despite weaker overall hiring demand.
The report suggests that, despite improving economic sentiment, many Australian small businesses remain focused on weathering current conditions rather than pursuing growth opportunities as FY27 begins.